Trade of the Week: long GBP/USD

(Video Transcript)

'Stop and reverse' on short cotton futures

Welcome to this week's Trade of the week on Monday, 9 October 2023. At the end of September, we went to short cotton futures and nearly got stopped out a few days later. But since there was no daily chart close above the highs seen back in November of 2022, at 9,002, we didn't get stopped out on that trade.

Since then, the price of cotton did come back down again, but then it flared up once more. So what I would suggest we do now is instead of just having a stop loss above the last reaction high of 9,013, I would make it a 'stop and reverse' order.

This means that if we were to close above that high, then I would also go long on that close because that would mean that we have broken through some key resistance going back to November of 2022 and that the odds are pretty high that further upside might take us much, much further with regards to the price of cotton going forward.

Long FANG futures: an almost-perfect trade

With regards to the trade from last week, we went long FANG futures. So the likes of former Facebook, so Meta, Apple, Amazon, etc. and we did so at 7,300. So that was nearly the perfect trade here.

Yes the market dipped back down again, but then it has risen since then. And you could now, if you wanted to, cash in around 250 points of profits here.

If you want to let this trade run, because it might go much, much higher, taking us back towards the 8,200 area what you could do is just raise your stop loss level to break even and thereby reducing your losses potentially to zero.

Going long cable

And for this week's Trade of the Week, what I thought we could do is actually go long cable, the British pound against the US dollar.

And the reason for this is that, despite non-farm payrolls coming in much stronger than expected last week on Friday at 336,000 versus an expected 170,000 and the US dollar rising last week, it did not manage to close for 12 consecutive weeks in higher territory.

This means that perhaps we could see a correction in the US dollar and that would benefit the British pound. And as we can see here also on this chart, we're seeing positive divergence, that is to say the latest low we made last week at $1.2038 was not accompanied by a lower reading of the Relative Strength Index (RSI).

o when we see positive divergence, quite often that leads to at least a short-term reversal in the overall trend. So what I would like to do is to go long cable with a stop loss just below that low then.

So today's Trade of the Week is to go long the British pound against the US dollar at around current levels with an upside target of around $1.2600 and a stop loss below last week's low, just below the $1.20 area, let's say at $1.1980.