I also suggest using two other key pieces of information BEFORE shorting GBP.
1. Use USDJPY as a measure of market risk appetite and stability
- As you can see below UJ has traded with a tight 38pip range vs GBP$ at 180pips. Therefore we can use UJ as a measure of stability and risk appetite:
1) because of its stability - UJ isn't acting as susceptible to the "noise" - with 4.5x less range; and
2) because as we know UJ is the "safe haven" FX pair which is sold massively when markets are trading risk-off. or risk averse.
- How to use UJ for GBP direction: Assuming UJ is the stable measure of risk (which has been true for the past week) it is fair to ALSO assume:
1) A rise in UJ means increased JPY selling which means there is a stronger risk-on attitude in the market as investors shed "safe yen" - buying GBP in the uncertain BREXIT environment IMO is considered the "risk-on" move - SO we can confirm GBP rallies with a rise in UJ
2) Conversely a fall in UJ means JPY buying, which means investors are seeking risk-off/ safer currency plays - selling GBP in the BREXIT uncertainty environment IMO is considered the "risk-off/ low risk" move - SO we can confirm new GBP shorts with a fall in UJ
*If you believe that the risk-on/ risk-off moves are the other way round e.g. GBP upside is the low risk play - then you can STILL use UJ as the indicator, just the other way around than above.
IMO and logically, GBP lower in this uncertain UK environment is the LOW RISK trade - especially given we traded at 1.46 8wks ago (not much downside is priced at these levels thus GBP moves lower are lower risk)
2. Wait for London open between 8am-10am GMT (4-6 hours from now)
- In these past weeks, the London open has been a key catalyst for GBP direction ESPECIALLY on the Sunday-Monday Asia which over as all of the weekend information is priced in for the biggest FX clients in LDN.
- Therefore it is prudent NOT to take a position until the big money volatility/ fluctuations/ noise is out of the way otherwise SL's may be susceptible to being hit AND MORE IMPORTANTLY, we may misjudge the market direction/ sentiment (given LDN is the largest FX Flow session).
- Several times the market direction and momentum has changed or been confirmed aggressively during the London open 8am-10am GMT so I think this indicator is a vital determinant
However, UK Money COULD come in and think that at these levels GBP and risk is over priced, and start shorting. OR they will follow suit and we could see a 3-4% up day.
One other positive, is that volatility across the board is so high that 3% moves up and down shouldnt be considered unusual - the market expects to be up and down like a yoyo - the aim of the game IMO is to take the lowest risk positions by shorting at the tops, hence why i want to see what LONDON does with the information from over the weekend before i make a move.
152 and 1.46 arent bad prices to be short, but looking how the markets are trading, I personally wouldnt want to hold risk at these levels YET. GU is probably your safest position as the downside is 200 pips to 1.478 (breaks this level then SL).
What you could do is cut GJ and keep GU (the better short), so your exposure is halved.
GJ ATM is the most volatile pair with 23rd at 28% whilst GU is at 18% e.g. we expect 50% more volatility with GJ in the next 3 days than GU, so GU is the less risky hold BUT equally, higher volatility means GJ is more likely to fall also.
UJ still hasnt made a move yet and is still 40pip range bound, which tells me the market isnt fully committed - if UJ breaks north id cut the shorts as investors are clearly happy to hold more risk.
Ive given you all the information, I hope you can make a decision based on this, sorry i couldnt be more helpful.