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Looks like I picked a bad time to short the euro!

Yesterday’s euro rally caused EUR/GBP to break its falling trend line and stop me out.

The ECB’s semi-optimistic statement and successful Spanish and Italian bond auction hyped up euro buying yesterday and finally put an end to its prolonged slide.

Apparently, Draghi and his men believe their strategy to contain the debt crisis is beginning to work, and that even though the economy’s still deteriorating, it’s also in the process of stabilizing.

EUR/GBP 4-hour Chart

Needless to say, this worked out badly for my trade, which needed the British pound to strengthen against the euro.

After slowing down near the top WATR/.8300 handle, this bad boy popped up sharply and booted me out of the market.

Stopped out at .8360: -59 pips / -.75%

Luckily, this didn’t deal my account a big hit since I decided to cut back on my risk.

Thanks for following, fellas! On to the next trade we go!

Trade Idea

Euro pairs have corrected a bit after the steep drop the past few weeks, but that doesn’t mean everything is A-okay!

In fact, after Fitch’s warning yesterday, I think it’s time to hop back on that short euro train!

Luckily for me, a sweet technical setup is forming on the 4-hour chart of EUR/GBP – check it out!

EUR/GBP 4-hour Chart

Pretty awesome, eh? The pair has been in a downtrend the past couple of months, and the price is currently retesting a falling trend line.

In addition, a doji just formed right smack at the 38.2% Fibonacci level, which just happens to line up with both the top WATR and .8300 handle.

Stochastic is about to cross over into overbought territory, indicating that the pair might come under selling pressure soon.

I’m also feeling pretty confident that the pound could gain some support today because if you take a look at GBP/USD, you’ll see that the 1.5320 to 1.5350 price area (where the pair is right now) was a MAJOR support zone in 2010 and 2011. I’ve got a feeling that traders will keep this support area intact, at least for now.

I don’t know about you, but that sure looks like a one-two knockout combo to me!

Of course, I can’t just discount the fundamentals, especially since we have TWO central bank statements coming up midway through the London session.

Both the Bank of England and the European Central Bank will be making their interest rate decision statements and while neither one is expected to come up with any changes to their policies, we could see some rough sailing during that time.

It’ll be interesting to see what all those policymakers think about the current state of the economy and how the markets will react to the statements.

Nevertheless, I think the BOE may be a little more optimistic than the ECB, and that the current sentiment against the euro should continue.

Short EUR/GBP at market (.8301), stop loss at .8360, take profit at .8200

With all that event risk, I’ve decided to scale back my risk a bit, and I’m only risking 0.75% of my account on this trade.

I’ve already entered at market at .8301 and placed my stop at .8360, putting it above the 61.8% Fib and the falling trend line. I’ve set my profit target at .8200, as I feel that if the pair drops, it could fall just a bit past the previous low before finding support.

Hope this works out as nicely as last week’s EUR/CAD trade! Good luck to those of you joining me on this trade!

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.