Trade Idea: EUR/GBP Long-Term Trend Line

Sterling seems to be putting up a really good fight against its forex peers these days so I’m looking at this potential turnaround for EUR/GBP. Think this long-term trend line would hold?

Price is testing the long-term falling trend line visible on the monthly time frame and might be ready to resume its slide, probably aiming for the area of interest around the .7800 major psychological level from here. Stochastic is already in the overbought zone but hasn’t turned lower yet so bears might be waiting for more confirmation at this point.

EUR/GBP Monthly Forex Chart

EUR/GBP Monthly Forex Chart

That monthly candlestick appears to be signaling a reversal but it’s just halfway into July so a lot could still change. Besides, we’ve got the BOE monetary policy statement coming up and this could trigger additional volatility for EUR/GBP.

For now, the pound is getting strong support from the improving U.K. political landscape, as market watchers no longer have to wait until September to find out who will be leading the talks with EU officials in Brussels. With Andrea Leadsom’s withdrawal from the race, Theresa May is set to take the Prime Minister spot and she has assured that they plan to make a success out of the Brexit, reviving confidence in the U.K. economy.

Meanwhile, the euro zone is dealing with its own set of problems, as the banking crisis in Italy is starting to make its way to the headlines. Contagion fears seem to be in play since euro zone banks are closely interconnected, particularly when it comes to sovereign debt holdings of the top economies. At this point, the Brexit-ing U.K. economy might actually be in a much better position!

I haven’t entered this trade just yet since I plan on waiting for the post-BOE dust to settle before setting my entries and exits. My plan is to short around this trend line resistance with a stop of at least 300 pips, wider than the pair’s average weekly range to give it some leeway, which would be past the spike to .8600 area.

As always, 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 simply follow what I do.

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  • forzion

    It can be interesting if the market realizes that UK comes out after Brexit in better condition that EU. Everything in this pair could then change dramatically. But now there is in my opinion not quite strong resistance for now to go short.

    I have setup some short orders testing my new strategy at demo account after yesterdays long bearish candle and I wait if it would retrace a bit to trigger them.

  • paul nelson

    Yeah, I just did some analysis done on these JPY pairs. Holy cow, I dropped my jaw to see these jpy pairs are extremely over sold area that occurs upon monthly charts as well as weekly charts. And I am performing a big demo project on these trading strategies that based on a very powerful analytical tool and that it is drawing the trend lines upon support level and resistance level. Just think for a moment, JPY pairs are quite convincing to deal with. Yeah, GBP pairs are convincing though. Do not forget these JPY pairs and their “law” of symmetries as well. Sounds convincing to see my trend lines drawings. The RSI have confirmed them to be extremely oversold that only applies to JPY pairs.

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