Forex Trade Idea: EUR/GBP Short

EUR/GBP popped higher today after a not-so-hawkish Bank of England event today. With the market testing a few potential resistance arguments, is this another opportunity to play the downtrend?

EUR/GBP 1-Hour Forex Chart

EUR/GBP 1-Hour Forex Chart

Taking a small nibble on EUR/GBP after the Bank of England’s meeting minutes and inflation report were released.  The main mover seems to be the 7-2 vote expectation for a rate hold, but it looks like there was only one MPC member voting for a rate hike at this time. Sterling took a big hit after the events and now EUR/GBP is testing a few technical arguments for potential resistance.

On the one hour chart above, we can see the market testing a few things:

  1. Falling trendline
  2. 200 SMA
  3. Minor psychological level of interest

In a downtrending market, these can draw in interest of sellers in the short-term, and I’m willing to take very small risk to test that, especially if the fundamentals still generally support the broad direction (BOE potential to raise rates while ECB keeps easy money policies on for the foreseeable future).  My max stop will be more than one day ATR because this is meant to be a short-term trade, while my max target is the recent swing low as it could draw in support if retested.  Here’s what I’m doing:

Short quarter position EUR/GBP at .7050, max stop at .7120, max profit target at .6950

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 0.25% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.42:1. 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!

  • Ken

    I like the entry and trade idea, although long-term I think the euro is going to have a good comeback against the pound. How about pulling that stop loss down to .7107 or so. That looks like a clear break against your trade and a good place to exit. No need to wait for .7120 to get out. Save those 13 pips, you’ll need them on the next trades. This trade needs a better r/r.
    It’s tough because the target isn’t that far away. Maybe wait until it rolls over and get the stop in at .7065. If you can short around .7035, and keep the same target you’ll have 85 reward and 30 risk………much much better r/r

  • Pingback: Forex Weekly Watch: Aug. 10 - 14, 2015()

  • Pingback: Forex Trade Review: EUR/GBP Short()