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The British pound just broke a major area of interest against the euro on recent growth in Brexit optimism. Long-term breakout or fakeout?

Broken Support on EUR/GBP?

EUR/GBP Daily Forex Chart
EUR/GBP Daily Forex Chart

Sterling bulls have been rewarded so far in 2019 thanks to developments in the Brexit saga that may avoid the dreaded “no deal” Brexit scenario, including a possible extension of the March 29 Brexit deadline if the withdrawal agreement is rejected once again, and the possibility of a second referendum vote that may cancel Brexit altogether.

Sterling’s rally has been pretty uniform against the major currencies, including against the euro which as been on its back foot this year as economic updates for the Euro area have been weak, prompting traders to start questioning whether or not the ECB’s plan to normalize monetary policy is still the right course of action.

Looking forward, I don’t think these fundamental drivers will suddenly change, but of course with Brexit, anything could happen. But for now, I think with the odds of a “no deal” Brexit dropping, this rally in the British pound could have legs, and the euro is still one of the best counter currencies as their economy isn’t likely to pick up steam in the next month or so.

So, I’m looking to short EUR/GBP after this break of the major area of interest around 0.8600. I’m going to be cautious with my entry though as this could be fakeout move, so I’m going to wait for a bounce back up to the broken swing low before shorting.

My stop will be one weekly ATR to give this trade room to breathe, and my max target is the next major support area that held back in 2017 .  Here’s what I’m doing:

Short half position at 0.8615, max stop at 0.8750, max target at 0.8350

I’m only risking 0.50% of my account on this trade and if it goes my way all the way to my target, I’ve got a potential starting return-on-risk of just under 2:1. I want to get up to 1.00% max risk eventually, which I’ll likely add if the pair gets back up to 0.8700, or if I’m in the trade and it hits a one ATR move from entry.  What do you guys think? Let me know in the comments section below!

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