EUR/GBP broke out of its slow grind, moving like a rollercoaster this week as it spiked up and then down in just two sessions.
Was that upside breakout legit, or was it a fakeout and the bears are back in control?
EUR/GBP Breakout Fakeout?
It’s been a busy week for EUR/GBP as traders had to make moves in a shifting risk sentiment environment and position ahead of today’s monetary policy statement from the European Central Bank.
That prompted EUR/GBP to break from a tight descending channel on rising covid-19 cases fears at the start the week before traders got bearish on the euro on Wednesday, likely expecting extended quantitative easing measures.
That bearishness continued in today’s session after the ECB confirmed that it would stay ‘persistently accommodative’ and that interest rates would be tied to inflation. It seems that the markets aren’t convinced that inflation and economic activity will stay up, which is likely why the euro has been trending lower since the initial spike higher.
With low rates for longer and the possibility of the U.K. recovering further after ending lockdowns in the U.K. this week, it’s likely that the breakout higher in EUR/GBP was likely a fakeout, and that the pair is likely back in its downtrend for now.
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With the market already back to the middle of the descending channel, we’ll be on the lookout for a retest of the top of the channel before considering a potential short play.
For short-term players, there’s strong intraday momentum in favor of EUR/GBP bears at the moment, and with the bottom of the channel marked around the 0.8500 major psychological level, there may still be an opportunity to catch some intraday pips.
What do you guys think? Is there still an opportunity to play the short side for a day trade in EUR/GBP? Is the longer-term swing lower still a solid trend to ride?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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