Starting off the third quarter of 2015 with a simple technical short setup on EUR/GBP. Is it time for sellers to jump in after the bounce?
Technically, since the weekend gap to .7000 on Greek default uncertainty two weeks ago, EUR/GBP has recovered a couple hundred pips to an area that I can argue may be attractive to sellers.
As we can see in the four hour chart above of EUR/GBP, besides being a previous area of interest, the current trading area is also the Fibonacci retracement area and just under a fresh trendline of lower highs. Finally, the stochastic indicator shows potentially overbought conditions and possibly a reversal. We may already be seeing signs of a reversal as the market is trading lower since retesting the major psychological level of .7200.
With that in mind, and to play the broad Sterling strength vs. a weak euro (and the Greek default & more uncertainty), I’ve decided to take a very small short position with a wide stop of one weekly ATR, and an open target, but my initial adjustment area will be the previous swing low. Here’s what I am doing:
Short half position at market (.7165), max stop at .7325, initial target at .7000
I’m only risking 0.50% of my account on this one, and with this trade structure I’ve got a pretty open profit target, but I’ll re-assess if my initial target of 0.7000 gets hit. 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!