Trade of the week: short GBP/USD
Following last week’s Bank of England dovish stance, UK rate cut expectations have been moved forward to June and have led to British pound weakness which we expect to continue.
We would therefore like to go short GBP/USD on a bounce to $1.2685 with a stop loss at $1.2805 and a downside target at $1.2520.
(AI Video Summary)
Previous S&P 500 and EUR/USD trading outcomes
In this week's "Trade of the week" video, Axel Rudolph talks about his recent trading experiences and his plans for the upcoming week. At the start, he mentions a trade he made on the S&P 500, where he "went short" (meaning he bet that the price would go down) but had to stop the trade and ended up losing 2% of his hypothetical trading money. He explains that he used something called "negative divergence" as a signal for this trade, but unfortunately, it didn't work out as expected.
Next, he talks about another trade he made on EUR/USD, where he "went long" (meaning he bet that the price would go up). He got close to his target, but the market suddenly turned the other way. He realised that he should have moved the "stop loss" (a level at which he would automatically exit the trade to limit his losses) to breakeven (the point where his trade would neither make a profit nor a loss), which would have prevented him from losing money. However, the stop loss is still in place, below the lowest price in late February.
This week's trading opportunity
Moving on, Rudolph shares his plan for the current week's trade, which is to "go short" on the GBP/USD. He gives two reasons for this decision. Firstly, from a fundamental perspective (meaning looking at economic factors), the Bank of England's cautious position and expectations of a rate cut have weakened the British pound. Secondly, from a technical standpoint (using charts and patterns to make predictions), he's noticed that an upward trendline has been broken and there was a failed rally after important meetings, indicating that a reversal in the price is likely.
His plan is to "go short" at a specific price of $1.2685, with a stop loss (the level at which they would exit the trade if the price moves against them) set slightly above the highest price reached last week, at $1.2805. He also has a target price of around $1.2520, meaning he expects the price to reach that level and potentially make a profit.
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