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EUR/GBP just broke to the downside from a short-term consolidation pattern. Will this draw in more sellers or is it another opportunity to for Sterling bears to hop in again?

Downside Breakout or Fakeout on EUR/GBP?

EUR/GBP 1-Hour Forex Chart
EUR/GBP 1-Hour Forex Chart

Of course, no one knows the answer to the question above, but I think the odds are that in the short-term this break could stay broken. Sterling is seeing better days lately, likely due to Prime Minister Boris Johnson’s effort to force a Brexit by the end of October being thwarted by the U.K. Parliament’s moves to block a no-deal Brexit. The Parliament passed a bill this week that will require Johnson to ask the EU for an extension if the U.K. and EU cannot come to a deal by October 31st, which is a situation that seems highly likely at the moment with the EU unwilling to re-negotiate the deal put together by form PM Theresa May.

So, pound bulls may have some legs for now, and its possible that unless we see another dramatic Brexit development, traders will probably continue to lighten up on pound short positions.

As far as the euro, we’ve got the upcoming European Central Bank’s latest monetary policy decision next week (Sept. 12th), and odds are that the ECB will likely put out a stimulative package that may include rate cuts, a long-term low rate proposal, and help for banks that are hurting from the negative rate environment. Depending on the size of the package, we could see the euro fall further by the end of next week, and possibly for the rest of the month if the package brings a big enough punch.

So, with all of that said, I will take a small nibbler position on EUR/GBP, and scale into a big position if the market bounce from current levels to play the above theme of Sterling rebound on no-deal Brexit avoidance vs. the ECB’s stimulus bazooka ahead. I’ll short up to the top of the previous consolidation range seen in the one hour chart above, and my stop out area will be one weekly ATR above the middle of that range to give the trade room to breathe.

My max target is the 2019 low area for a really nice potential R:R, but it’s likely I’ll close the trade down after this month’s monetary policy events from both the ECB and Bank of England, or if Brexit development spark a large move. Here’s what I’m doing:

Short EUR/GBP at market (0.8950), max stop at 0.9185, max target at 0.8500  with 0.33% risk

Short EUR/GBP at 0.9025, max stop at 0.9185, max target at 0.8500 with 0.33% risk

Short EUR/GBP at 0.9095, max stop at 0.9185, max target at 0.8500 with 0.34% risk

I’m only risking 1.00% of my account on this trade if all positions are triggered and I’ve got max potential return-on-risk of over 3:1. I do look to adjust this position quickly depending on upcoming U.K. and Euro areadata or Brexit updates.

What do you guys think? Let me know in the comments section below!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.