EUR/GBP continues to push higher, breaking past that rising wedge formation I was looking at and creating an ascending channel on its 4-hour chart. Time to hop in?
EUR/GBP Trade Setup
I’m seeing a neat Fib play on this one, as the 61.8% Fibonacci retracement level lines up neatly with the channel support around the .8550 minor psychological mark and a former resistance area. Stochastic is heading south so the pair could be in pullback mode from its recent climb, offering a chance to catch the climb at cheaper levels.
I’m long-term pound bearish mostly due to the upcoming Brexit negotiations during which the U.K. economy’s fate could hang in the balance. EU officials seem intent on making things difficult for the U.K. in this breakup and Prime Minister May has hinted that they’re willing to forego access to the single market in exchange for closing their borders. Forex Gump also listed a number of updates suggesting a likely “hard Brexit” scenario for the Brits.
However, sterling seems to be regaining some ground for the time being after BOE Governor Carney acknowledged that recent data has been in line with the central bank’s upgraded projections. Although he still expects growth to slow this year, he highlighted how inflation has picked up significantly and even admitted that they may have overstated Brexit risks.
Either way, I doubt investors will be rushing to put more funds in the U.K. economy until the dust settles and I don’t think that’s bound to happen anytime soon. On the flip side, the euro could function as a safe-haven of sorts in the region while also attracting some long positions on relatively upbeat euro zone data.
I’m considering putting a long position at the .8550 area with a stop below the swing low at .8450 and an initial target near the swing high for roughly a 1:1 reward-to-risk. I’ll be ready to adjust my target higher and trail my stop accordingly, depending on how Brexit headlines turn out.
As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.
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