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.
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.