I’m setting my long orders on this one, fellas! EUR/GBP is showing a lot of bullish momentum after bouncing off the long-term area of interest, and I think I can still hop in on a quick pullback.
Long EUR/GBP Idea
In my watchlist blog post, I highlighted a classic break-and-retest setup visible on the daily time frame, with a bullish divergence to boot. The pair bounced off the .8800 handle then made it up to .8900 before showing signs of a pullback.
Earlier this week, I had my eye on a smaller correction play so that I could join in this EUR/GBP climb. Price looked prime for a pullback to the 38.2% Fib, which happens to be the broken neckline of a double bottom pattern on the 1-hour chart.
I’m keeping a bearish pound bias because of all the attention on Brexit concerns these days. Prime Minister May has been scrambling to restore confidence in the U.K. economy and in the government’s bargaining stance in negotiations, but it looks like the EU still has the upper hand.
Even though the euro zone is also dealing with its own share of political uncertainty stemming from Catalonia’s independence vote, the region’s fundamentals have been more solid than ever and ECB tapering expectations remain intact.
In terms of event risks, ECB head honcho Draghi has a speech coming up on Thursday while the U.K. manufacturing production report is due in a few hours. Analysts are expecting to see a meager 0.2% uptick versus the earlier 0.5% decline and if the disappointing manufacturing PMI is any indication, the report might surprise to the downside.
Here’s my game plan:
Long EUR/GBP at .8925, stop loss at .8825, profit target at .9275.
I’ll be risking 0.5% of my account on this setup for a potential 3.5-to-1 play. I also plan on adjusting my stop to entry once price tests the swing high close to the .9000 major psychological level.
As I’ve learned in my Q3 2017 trade performance review, I’ll be more careful about reacting to short-term market noise and keep reminding myself that I’m holding on to this position as a swing trade based on fundamentals.
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