Forex Trade idea: 2014-03-12
Here’s a simple forex trade idea on simple range behavior to play my bearish bias on EUR/GBP. Will the top of the range hold?
I’m still bearish on EUR/GBP despite recent weakness in sterling. Even though it looks like the Bank of England (BOE) won’t tighten monetary policy any time soon and that a strong British pound may hurt exports, the U.K. economy is still ahead of most of the major economies in terms of an improving economy. Also, the eurozone is the U.K.’s biggest trading partner, and it looks like the volatility against the euro has been fairly stable.
So stable in fact that the 2014 range has been only a 2 pence change in value. Looking at the four hour chart above, it’s been in a range between roughly .8200 to .8350, and now, the pair is testing the top of that range.
And with yesterday’s comments from BOE Governor Mark Carney shaking out sterling traders betting that we’d see a rate hike soon, this is a good opportunity to play my bearish bias at a better price and previously strong resistance level, and ahead of U.K. jobs data next week (which has been trending mostly positive). I’ll use a volatility stop on this pair (1/2 WATR) and my target will be the bottom of the range, hopefully by the end of next week. Here’s what I am doing:
Short half position EUR/GBP at .8330, stop at .8380, profit target at .8190
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.8:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary.