Will the recent sentiment shift in both the euro and pound push EUR/GBP back up to the broken support area? If so, will it draw in forex traders to sell?
At the moment we’ve got EUR/GBP on the upswing thanks to a combination of recent positive European data (GDP last week and economic sentiment data today) and the weak consumer price index data from the U.K. I’m not sure if it’ll be enough to get the pair up to the broken support area marked on the chart above (around .7450), but this is a pretty data heavy week for both currencies with U.K. unemployment data, MPC meeting minutes and European PMI data as the big potential movers.
If the market does get up to the area of interest betweeen .7450 – .7500, I think we could possibly see the longer-term trend sellers looking to play the monetary policy divergence hop in, barring any major bullish developments like a sudden bailout agreement between Greece and the rest of Europe. I’ll look to scale into that area with small positions, and use a wide weekly ATR stop to give me room to breathe in case there is a bullish surprise. My target will be a pretty big one since there are support levels around until levels we haven’t seen in a very long time. Here’s what I am doing:
Short half position EUR/GBP at .7450, stop at .7625, profit target at .7175
Short half position EUR/GBP at .7500, stop at .7625, profit target at .7175
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 2:1 if both positions are triggered. 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. Stay tuned!