Now that the BOE decided to keep interest rates on hold for the time being, I’ve gotten confirmation to enter this short EUR/GBP setup. It also helps that I’m seeing this reversal pattern on the 4-hour chart.
The pair broke below the head and shoulders neckline during the actual BOE statement, as majority of the policymakers voted to keep interest rates (8-1) and asset purchases (9-0) unchanged. The minutes of the meeting also revealed that BOE officials are foreseeing stronger inflationary pressures, thanks to the sharp pound depreciation. MPC members noted that they’d rather wait for the next batch of forecasts in August before adjusting monetary policy.
With that, sterling could recoup some of its recent losses, especially since the euro zone is facing its own set of domestic challenges. As I’ve noted in my EUR/GBP trade idea blog post, the banking crisis in Italy is sparking fears of contagion since the large banks are exposed to sovereign debt. Besides, traders who are looking to hedge their short pound positions might have EUR/GBP as their best bet.
I shorted at market when price pulled up to the broken neckline and I set my stop past the highs at .8625. I’ll be aiming for the area of interest around .7800 for my initial profit target.
Here’s what I have:
Short EUR/GBP at .8350, SL at .8675, PT at .7825. I’ve risked 0.5% of my account on this setup for a potential 1.6-to-1 return-on-risk.
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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