I’m still a big fan of sterling against the euro, so when I saw this juicy pullback, I just couldn’t pass it up!
I’m still in the camp that thinks the British pound will continue to be one of the stronger major currencies like it was in 2013, and that the U.K. will continue to be strong relative to a stabilizing Europe. So, I’ve been waiting for a nice pullback to play the longer-term downtrend for my first trade of 2014.
It looks like I may have got that this week as the pair rallied higher to test the previous week high (PWH) and top of its weekly average volatility range (WATR). Since it looks like that area held as resistance and the market is moving lower, I’ve decided to take a small short position, possibly turning it into a bigger short position if it goes my way. My stop is above the recent swing high as a move above the consolidation is a sign that buyers are back in control, while I’m shorting last week’s lows for a nice potential return-on-risk. Here’s what I am doing:
Short EUR/GBP half position at .8320, stop at .8370, profit target at .8230
This initial position gives me a potential return-on-risk of 1.80:1, on 0.50% risk. If the market does go my way and we see a strong break of my soft profit target at .8230, I may scale another position to maximize my profit.