Will this pair resume its downtrend? Price is currently testing the channel resistance, but I gotta take a look at fundamentals and potential catalysts for these European currencies first!
Short EUR/GBP Idea
In my Weekly Watch, I posted a chart of EUR/GBP moving in a range on its 4-hour chart but on closer look, I’m seeing a bit of a descending channel. It looks like resistance around the .8750 minor psychological mark is already keeping gains in check, putting the pair on track towards testing support near .8350.
Stochastic is pointing down to indicate that sellers are in control of price action, possibly sending EUR/GBP at least until the mid-channel area of interest around .8550. I’m inclined to hop in at market, but I think I’ll wait for some confirmation from fundamentals first.
Lined up from the euro zone today are medium-tier reports from Germany and France, which might post another round of upside surprises. However, Draghi’s recent testimony already downplayed improvements in the region, citing that an “extraordinary amount” of monetary policy support is still needed to keep the economy afloat.
Meanwhile, the pound seems to be recovering from its sharp tumble late last week when opinion polls showed that the lead of the Conservatives in the U.K. versus the Labour Party is narrowing. Early this week, another set of poll results were released reflecting a pretty safe gap in favor of May’s political party, allowing sterling to rebound.
This goes to show how sensitive the U.K. currency is to political headlines these days. After all, the snap elections are scheduled to take place soon and everyone is eager to find out whether there will be some form of government stability or if more uncertainty is to be expected.
I’m eyeing a potential short play around these .8700 levels, depending on the outcome of today’s euro zone reports. Although the region has shown some green shoots, the U.K. economy has actually churned out more signs of resilience in the past few months, even leading one BOE member to call for an interest rate hike recently. I’ll set my stop past the .8800 mark and aim for the channel support around .8350 as my PT.
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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