Forex Review: EUR/GBP Short

Forex Trade Review: 2014-10-15

No luck on my EUR/GBP short setup as market sentiment when into fear mode on both U.K. inflation data, global growth data, and Ebola fears.

EUR/GBP 4 Hour Forex Chart

EUR/GBP 4 Hour Forex Chart

It’s all about risk aversion this week on a few different factors:

  1. Global economic data weakening
  2. Fears that Ebola will spread

We also got weaker-than-expected U.K. inflation data this week, which adds fuel to the speculation that the Bank of England doesn’t need to raise rates any time soon (bearish Sterling).  All combined, risk-off moves were taking place all week, and with EUR/GBP, that means flows out of the higher yielding currency (British pound) to the lower yielding currency (euro).

With the U.K. unemployment rate ticker lower this morning, I thought that the 61% Fib would hold, but volatility spiked like crazy after the weaker-than-expected U.S. data (retail sales and PPI), which took me out of my trade at my stop, .7990. 

Total: -100 pips/ -0.50% loss

The fear sentiment was rising all week, so I probably should have cut out earlier, but since I risked so little this time I thought waiting for the positive U.K. unemployment data would have helped turned the trade my way.  Of course, issues like Ebola fears contributing to market sentiment is tough to gauge and sometimes forces the market against you–that’s just the way the game goes sometimes.

So, a tiny loss taken and I’m already looking at crafting a new trade to play the current fear environment, which could hang around for now.  Stay tuned!