Short-Term Swing Short on EUR/GBP

Forex Idea: 2014-09-23

Spotted a beautiful short-term technical setup on EUR/GBP that would make a great addition to my near empty portfolio of forex trades.  Are the bears back in control?

EUR/GBP 1 Hour Forex Chart

EUR/GBP 1 Hour Forex Chart

On the one hour chart of EUR/GBP above, it looks like sterling bulls are back in control now that we’re well passed the vote that almost split Scotland from the United Kingdom. With that uncertainty out of the way, it makes sense that forex traders are back to play one of the stronger major economies through a currency with potential to keep climbing.  And with disappointing results from last week’s LTRO offering to European banks, the outlook continues to look weak for the European region.  I think the fundamental drivers are there to draw in more sellers than buyers, especially without any major catalysts in the short-term.

Technically, there’s a textbook pullback setup forming with a quite a few arguments for resistance:

  1. Falling trenline
  2. Fibonacci retracement
  3. Moving averages as dynamic resistance
  4. Major psychological level (.7900)

A combination of the technical arguments above creates a good probability that if retested, sellers could hop in to take advantage of a better price and risk-to-reward potential.  So, that’s what I’m doing this week.  If the pair pulls back to the .7900, I’m looking to short with a wide stop of around one weekly ATR, and my initial target of last week’s low.  Here’s what I am doing:

Short EUR/GBP at .7900, stop at .7970, initial profit target at .7810

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.28:1.  If I can get in and it does hit .8010, I’ll re-asses to see if this is worth holding on to (or get bigger in) for more gains, or close early.

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.  I won’t hesitate to close this trade early if there is a break above the falling trendline and holds above.  Stay tuned!