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March 2nd, 2013 at 4:52 am

Bad Day for Pound, Good Day for Trading It.

Following a day of consolidation, the British Pound sprang back to life on Friday. More to the point, the volatility returned, even if the GBP itself sank to new lows for the trend. It was broad weakness, with sharp declines versus most other majors. The catalyst came in form of Manufacturing PMI numbers, which registered at 47.9, significantly below the forecast of 50.5. The reading below 50.0 suggests economic contraction, but the large between predictions and reality was perhaps even more important. Disappointment of this magnitude is always a shock to the markets, even if only a temporary one. After all, by Monday, the focus will shift to other developments and this will be swiftly forgotten. Next week the Bank of England has its scheduled policy meeting and the Pound will be in play again, this time for other reasons.

As always on Fridays, I looked for breakout trades at the start of the London session. The Pound pairs were the easy choice, given they had consolidated all Thursday. This presented tight and prolonged (from the short-term perspective) ranges, suitable to sharp, fast moves. I was not overly concerned with direction, having placed a straddle play in these crosses. One of them was the GBP-CAD, with a sell at 1.5605 and a buy at 1.5657. The price moved lower with vigor, meeting my objective of 1.5520 within half hour. While this was a good trade, about twice as much was possible, although I have regrets about not holding it longer. That put a nice finish to a very good week; one I can only wish it was the norm. Have a great weekend!

Mike K.

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