Trade Idea: EUR/GBP Head and Shoulders

I spy with my one eye this long-term reversal pattern on EUR/GBP! And since the pound has been lifted by strong jobs data and anti-Brexit sentiment┬álately, I’m thinking of hopping in a short position.

As you can see from the pair’s 4-hour chart below, price completed its head and shoulders formation then broke below the neckline around the .7750 minor psychological mark. Price seems to be stalling around the .7700 handle right now and might be due for some profit-taking or additional volatility, especially with the U.K. retail sales report coming up.

EUR/GBP 4-hour Forex Chart

EUR/GBP 4-hour Forex Chart

I haven’t set any actual entry orders yet since I’m still waiting to see how the┬álatest consumer spending numbers turn out. If the April jobs report is any indication, the stronger than expected increase in hiring and the rebound in wages might lead to higher retail sales. Analysts are expecting to see a 0.6% increase so anything above that could convince me to short at market.

A weaker than expected reading, on the other hand, could lead to a rally for this pair and might give me a chance to short at a much better price, possibly around .7750-.7800 or the broken bottom WATR. I plan on setting my stop near the right shoulder or .7925 then aiming for a 400-pip profit target, which is roughly the same height as the reversal formation.

Here’s my plan:

Short EUR/GBP at market or .7750, stop loss at .7925, profit target at .7375. I’ll be risking 0.5% of my account on this potential 2.14-to-1 trade.

Don’t forget to check out our risk disclosure if you’re joining me on this one!

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