Forex Trade Idea: EUR/GBP Break Lower?

EUR/GBP took a step below the recent consolidation area and strong support, so will forex traders continue to sell into the recent downside momentum?

EUR/GBP 4-Hour Forex Chart

EUR/GBP 4-Hour Forex Chart

Last week, the ECB gave forex traders the go ahead for selling euros by giving dovish commentary on the euro and interest rates during last week’s press conference. EUR/GBP bearish benefitted from the event, pushing the pair below a strong support area around the .7250 level that goes back to August. This week’s disappointment from the U.K.’s preliminary GDP report likely supported the bounce higher we’re seeing, so now the question is will this be another opportunity to short at that previously strong support area?

Once again, I won’t know until we get there, but I think with the possibility of the ECB getting bigger with their efforts to support the eurozone vs. a growing U.K. economy (albeit at a slightly slower pace), there will be more sellers than buyers if the stories remain constant.  Also, the stochastic indicator is showing that we may be potentially seeing overbought conditions in the short-term.

So, I will be putting orders up to short small positions between .7250 – .7300, with a wide stop just above recent price action.  My target will be a relatively large one since the fundies and technicals seem to be going my way, to just above the 2015 lows and a major, major psychological level.  Here’s what I’m doing.

Short quarter position EUR/GBP at .7250, max stop at .7375, max target at .7000

Short quarter position EUR/GBP at .7300, max stop at .7375, max target at .7000

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 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 3:1 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!