Forex Trade Idea: EUR/GBP Resistance to Hold?

EUR/GBP has finally reached an area of previous strong resistance.  Will the psychological area hold and create a simple forex range setup?

EUR/GBP 4-Hour Forex Chart

EUR/GBP 4-Hour Forex Chart

The answer to the question above is of course, “I don’t know” but with this area holding as strong resistance in 2015, you gotta think that other traders are checking it out as a potential sell area.

Now, the sentiment is currently against Sterling on this pair, both on recent mixed economic data (positive eurozone surprises while some weak U.K. data) and the global risk aversion sentiment sparked by sell offs in the Chinese equity market.  This move may be overdone according to the stochastic indicator, but to be safe, I’m using a really wide stop (even more than its weekly ATR) in case forex risk aversion isn’t over yet.

I’ll target the bottom of the 2015 range, which makes for an attractive potential risk-to-reward, especially considering there is a tiny bit of positive carry on this setup.  I may even consider holding on to the trade and go for a lower target if the overall stories and currency market drivers favor Sterling over the euro.  For now, here’s what I’m going to do:

Short half position EUR/GBP at market (.7445), max stop at .7650, max profit 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 2.17:1. 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 and let me know what you think about the trade setup in the comments section below!

  • James Kelly

    Hi. Now it’s broken through this area of resistance do you think it could become an area of support or do you think this is just a fake breakout?

    • Cyclopip

      It’s a tough call James. I think it’ll depend on Carney’s speech and the BOE meeting this week. Also, is risk aversion sentiment over? Those are the next possible catalysts, but from my view, the rally feels a little over done.

  • forzion

    I think this can be also a good setup. I have an opened short position at 0,7510 and my profit target is near 0,7250, because if I look into monthly chart I see there a clear warning if possible long term reversal so I am not so confident we can get back to 0,7000 again and I would try to go for long if there would be some correction to 0,7200-0,7300 area especially if the risk-off sentiment remains.

    • Cyclopip

      Thanks for your thoughts and sharing your trade. If it does go our way, then .7000 might not be within reach for a while with risk sentiment the way it is. But you never know, and the longer-term trend and fundies are still in Sterling’s favor.

      • forzion

        Anyhow I am still in favor for GBP against the EUR and it is a nice carry trade. I am just going to build position for opposite direction from now and the 0,7200 – 0,7300 area seems to be a good opportunite for my first minimal long term long.

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  • forzion

    Well it has not happened. But I went out without losses even thou I tried several entries. I closed my positions always without loss after there was higher high with retracements to my entry prices. Maybe now is the time to short this pair.

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