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?
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:
- Falling trendline
- 200 SMA
- 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
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!