EUR/GBP Short Closed: Review

Forex Trade Review: 2014-03-16

Shortly after the weak U.K. trade balance data was released on Friday, I decided to close my EUR/GBP short as it seems like the story is changing for both currencies.

Original Trade Idea: Long-term Range on EUR/GBP

EUR/GBP 4 Hour Forex Chart

EUR/GBP 4 Hour Forex Chart

In my opinion, the top of the range that I pointed out still hasn’t been broken cleanly and the area might still hold, but I closed my trade mainly on the idea that Sterling isn’t the dominant currency it as in 2013 and that euro strength sentiment is growing.

The eurozone has been off of crisis mode for a while and now confidence is growing that the economy is expanding. We’ve seen more often-than-not positive data, and deflation isn’t a concern for the ECB at the moment.  This all means that the ECB won’t take any loosening actions with monetary policy for now, which has been bullish for the euro.

On the other side of the coin, data has not been strong as of late, with the trade balance data ticking lower being the most recent example.  And the Bank of England doesn’t seem to be in any rush to raise rates despite having an economy that’s on the upswing over the past year.  Along with a few other factors that recently weighing on the pound, this means that forex traders betting on a rate hike soon, will probably taking those bets down.  And if they haven’t already, any further weak economic releases or the upcoming meeting minutes may sway them to do so.

So, I decided to get out.  To me, Sterling doesn’t seem to have that edge anymore.  I could be wrong, but to me long Sterling against the euro isn’t attractive at this time.  I closed at market (.8363) for a very, very small loss.

Total: -28 pips/ -0.28%

I’ve had this feeling that Sterling was losing its edge for a while as it has been on a pretty good run for almost a year.  The technical setup was compelling to me, but forex traders didn’t seem to play it as I hoped they would by holding it strongly and turning the pair lower quickly.  In the future, I’ll probably wait for more price confirmation with a move lower; in hindsight, it still would have been a decent R:R if I had gone that route.

That’s it for me.  Thanks for checking out my blog…hope you enjoy the rest of your weekend!

  • John

    Sorry to hear your trade didn’t work out. I wouldn’t exit so soon though. According to news I read on Friday, the ECB is uncomfortable with the Euro high right now. Draghi is trying to weaken the Euro. France’s export is already taking hits due to the Euro high. Just like you said, stability in the Eurozone is drawing in investors. There is no crisis in sight and the southern troublemakers have started working on their problems, some of them even making a small surplus. We’ll see wether the Euro will further strengthen. What makes me uneasy the most is the unpredictable situation in the Ukraine.

    A current prognosis by the CIO of the Deutsche Bank Private & Business Clients sees the Eur/Usd at 1,25 at the end of this year.

  • simon wong

    I think that it’s prudent to close the position.

    One of my trading rules is that when my trade is not going according to plan after a time period, I will close the position and reassess the trade.

    For example, if I have a bearish position, I will expect the price to be going down after a certain time period or the price structure/indicators should show continued weakness. If not, then my trade is not going according to plan and my initial assumptions are probably wrong or some fundamental factors have changed.

    This is similar to the the case of the Hound of the Baskervilles by Sherlock Holmes. When the hound did not bark when it should, it is a vital clue or warning.