EUR/GBP continues to be in a steady grind lower, but .7000 proves to be too tough for forex traders to break. Time for a bounce and another opportunity to sell?
Looking to play a short-term setup on EUR/GBP above, selling on a pullback to previous broken-support and the moving averages (may serve as dynamic resistance). We just saw the pair test the major, major psychological level of .7000 this week, and it held like champ as it drew buyers in and/or caused some shorts to take off some profits.
The market could make its way back to the highlighted area of potential resistance, where I look to play with a very small position my fundamental bias of the U.K. in an economically stronger situation than the euro zone. If the pair does retest that area, it could draw in trend traders and fundamental players, so I think the odds of resistance are good as long as we don’t get a big bearish surprise from this week’s U.K. retail sales data.
There is expectation of a weaker retail sales number, but I think after the release and initial reaction, currency traders could focus back on the macro picture. Also on the dock is a speech by ECB President Mario Draghi this week, but the odds are low of this being a major market mover. Of course, the risk of a big volatility spike is always there when he speaks, but with speculation of more QE from the ECB, it’s likely to be in favor of my short euro bias.
So, I look to short around the week open, with a wide stop in case the upcoming events sparks big volatility, and a big profit target incase that big volatility is in my favor. Here’s what I’m doing:
Short half position EUR/GBP at .7050, max stop at .7175, profit target at .6900
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 2:1. 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!