Cross-Eyeing: Descending Channel on EUR/GBP – Orders Cancelled

Orders Cancelled: 2011-11-29 22:17

EUR/GBP Daily Chart

Rather than edging closer to .8700, where I had set my trap to catch this pair, EUR/GBP trickled lower in the past few days. Now it’s well below the .8600 handle! Drats!

With risk aversion easing over the past couple of days, the pound has proven to be much more resilient than the euro. But then again, that’s what I had always expected and it’s precisely the reason why I had wanted to short the pair in the first place.

Unfortunately, price didn’t pull back high enough to tap the 61.8% Fib level. It peaked at the 50.0% Fib last week and it has been going down ever since!

There have been a lot of rumors about a possible solution to the European debt drama in recent days, but all this speculation has done little to dispel the bearish sentiment for the euro. The set of downgrades that hit the euro over the weekend pretty much kept it from gaining ground against the pound, which has been acting more and more like a safe haven in Europe.

That being the case, I still think that EUR/GBP will continue trending downwards. However, with price so far away from my desired entry point, I think it’s best to cancel my orders in the meantime. But you can bet your bottom dollar that I’ll be keeping my eye on this pair!

Of course, I’ll also be keeping tabs on the key weekly levels that I pointed out on my Weekly Watch. EUR/JPY seems to be responding well to the levels we drew up. I hope you guys made money off those moves!

Trade Idea: 2011-11-24 03:23

As my homie Forex Gump pointed out recently on his blog, the pound has been killin’ it against its European counterparts. In fact, it’s because of his post that I stumbled upon this great setup on EUR/GBP!

EUR/GBP Daily Chart

The pair has been trading within a descending channel over the past few months, indicating that the pound has been more resilient than the euro.

Fundamentally, this makes sense. Even though the Bank of England introduced another round of quantitative easing by expanding its asset purchase facility, the markets have remained focused on the lack of progress in solving the European debt crisis.

Rising yields. Political turmoil in Greece and Italy. European government and ECB officials playing the blame game. These are all just some of the major developments that have swamped the headlines the past few weeks. If you ask me, it should be pretty clear that the euro zone is in a lot of trouble, and I don’t see this going away anytime soon.

That’s why I’m sticking to my short euro bias, and I think this setup on EUR/GBP could give me the chance to put my thoughts into action!

Not only is the pair trading within a long-term descending channel, but the top of the channel lines up with the 61.8% Fibonacci retracement level and the .8700 handle. In addition, Stochastic is close to hitting overbought conditions, indicating that selling pressure may kick in soon!

Now, even though price seems to have bounced off the 50.0% Fib, I’m going to be patient and see if this heads back up to test the .8700 handle. Shorting now would just give me a terrible reward-to-risk ratio.

My plan is to:

Short EUR/GBP at .8700, stop at .8800, profit target at .8500.

This would give me a more ideal 2:1 reward-to-risk ratio and shift the odds greatly in my favor. For now, I just have to be a little more patient and wait this trade out.

Who’s gonna join me on this trade?