Risky but calculated potential long for EURGBP. As previously stated, this pair has been ranging between (circa) 87.50 and 85.00 since May of 23’. It would appear that the pair may have entered a potential bearish channel (yellow) from September 23’ to present. Within this bearish channel the price has been moving within a bullish descending wedge (white).
It seems we have now reached the confluence point between the lower end of the wedge, the bottom of the trend channel and a major support zone for the current range (grey). It is for this reason I think there is a strong argument for buying this pair in anticipation for a pullback in price to the upper limits of the bearish channel.
The main reasons I would categorise this trade as risky is because both the ECB AND BoE have refused all attempts at discussing an appropriate timeline for a rate reduction, although the ECB was more clear and firm stating that’s it’s still too early to discuss a reduction. In contrast the BoE was slightly more Dovish regarding rates which may pose a problem for sterling in the near future. The lack of guidance from both institutions has left markets speculating. Two votes for a rate rise wasn’t all that surprising but with a member voting for a reduction for the first time since these hikes began it could signal policy direction in the near future. Moreover, mortgage providers in the uk surprisingly reduced rates on some mortgage products yesterday which could further signal an industry wide expectation that we have reached the terminal rate.
On a technical side note, the price has very recently broken a historic and well respected rising trend line (green) which goes back to July 2015. So you can see it yourself, the respective test dates are as follows;
July 15’
Nov 15’
March 22’
April 22’
August 22’
July 23’
August 23’
September 23’
Dec 23’
This most recent move (January 24’) may be quite significant as it is the only significant break past this line since it formed 8 years ago this summer. The question on my mind, is it a breakout or fake-out? I guess time will tell but if it is the former then I would perhaps look to see a pullback in price prior to continuing its bearish trend, which adds further legitimacy to the overall support for a cautious long.
To further support this idea, moderate divergences can be seen in price action and the indicators shown. As such, I entered a long position at 85.23 but placed a TP at 85.63 (previous high) due to this weeks news… which was unknown at the time.
I have since entered again at 85.22 with a view to scale in my positions as/if the price drops. As always, I will be securing my capital in the form of appropriately placed hedged positions. The details of S/L and T/P are placed at your own discretion.
What do you guys think?
Happy trading!
Comment:
As expected, the price moved lower, my second trade closed at break even. Despite todays data not meeting expectations, it’s still falling in the right direction but this may support sterling in the short term. It is with extreme caution that I have entered long with a very real understanding that the price could go to the lower support of the yellow channel, circa 84.65. That being said, the plan still stands.
Trade 3 - open at 85.034
Trade 3 - open at 85.034
Comment:
Trade 1 - closed 85.63 - 40 pips
Trade 2 - closed at break even +5 (cover swaps)
Trade 3 - closed at 86.002 (red circle) 96.8 pips
Trade 4 - still open
Total so far - 136.8 pips
Trade 1 - closed 85.63 - 40 pips
Trade 2 - closed at break even +5 (cover swaps)
Trade 3 - closed at 86.002 (red circle) 96.8 pips
Trade 4 - still open
Total so far - 136.8 pips
Comment:
With the long term trend channel which started back in the days of the mini budget catastrophe (yellow) now being broken I suspect the pair may now start to rise. This is in alignment with BOE Ramsden's comments regarding inflationary pressures being under control. Without data these are just opinions but as I’m inclined to agree I’ve left trade five open.
Trade 4 has been closed at 0.8630 for 120 pips profit.
Trade 5 tp is at 0.8650
Trade 4 has been closed at 0.8630 for 120 pips profit.
Trade 5 tp is at 0.8650
Comment:
Trade 5 - stopped out at 0.8615 for 105 pips
Total profit - 361.8 pips.
Although all of my trades are now closed on this pair, I’m again looking for buying opportunities around previous lows.
Total profit - 361.8 pips.
Although all of my trades are now closed on this pair, I’m again looking for buying opportunities around previous lows.
The rejection and tweezer top forming on the daily (red circle) has me seeing a strong possibility for a move to the downside.
As such, I’ve placed a stop at break even with a view to enter again between 85.20 - 84.90
My caution is further supported by a speech from the BoE’s Catherine Mann, which is scheduled for Thursday. Take note as Mann was one of the two MPC members who voted for a rate hike of 25 bps last week. This has me anticipating a more hawkish stance regarding monetary policy which may support sterling in the short term.