Burgeoning trends that were developing through the end of last week have stalled, leaving the market’s to general congestion. However, with so many pairs turning to stable market conditions after having already forced notable breaks, range traders must be more selective in sizing up their positions. EURGBP is one of the most promising range-based pairs given current market conditions.
[B]Why Would EURGBP Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 0.9500 (Double Top)[/B]
[B]-Range Bottom: 0.9025 (Trend, Fibs, SMA)[/B]
· In the fallout after the [G20 meeting last week](http://www.dailyfx.com/story/special_report/special_reports/G_20_Statement_Light_on_1238703402851.html), there are still a lot of questions that have been left unanswered. EURGBP is still at the whims of risk appetite. Though leaders at last Thursday’s meeting vowed regulation, increase stimulus and aid to the emerging markets, details were scarce on how such sweeping policy would be implemented. If doubt creeps back in, the pound will loose it buoyancy. Otherwise, top event risk is the BoE rate decision.
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· For [price action](http://www.dailyfx.com/story/currency_crosses/currency_crosses/Euro_Crosses_Could_Turn_Higher_1238525529870.html), we have another long-term trend coming into conflict with a recent surge in bearish momentum. The rising trend pulled from October’s swing lows has so far held back the downswing that has developed over the past three weeks. Further backed by a rising 10-day SMA and Fib confluence, we still need a bullish close to confirm its resiliency.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Half sized entry orders will be placed at 0.9055, well above the recent lows.[/B]
· [B][U]Stop[/U][/B][B]: Our initial stop will cover the technical confluence with room for a false break at 0.8980. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (75) at 0.9130 while the second[/B][B] target will be 0.9300. [/B]
[B]Trading Tip[/B] – Burgeoning trends that were developing through the end of last week have stalled, leaving the market’s to general congestion. However, with so many pairs turning to stable market conditions after having already forced notable breaks, range traders must be more selective in sizing up their positions. EURGBP is one of the most promising range-based pairs given current market conditions. Technicals are solid, with support well developed (even though short-term momentum has taken a decidedly bearish tone and we have yet to see confirmation of a tentative reversal) through a collection of Fibs, trend, notable 100-day SMA and former congestion in the same area through past price action. The risk of a confirmed trend reversal is significant though. The push below 0.9150 was a notable breach last week; and considering the uncertainty surrounding risk appetite following the G20 meeting as well as the presence of Thursday’s BoE rate decision, fundamental pressures could play a significant role in developing price action. Our strategy takes the cautious approach. Entry is very close to support to allow for a strong risk profile with a stop that can be set wide without encouraging too much notional risk. A half-size position lowers the potential for loss (necessary considering the pip cost of the high pip cost for this pair). This naturally allows for a close first target that can book profit and eliminate risk rather quickly. To avoid the BoE rate decision, we will cancel all open orders by Wednesday or should spot hit 0.9150 before we are entered.
[B]Event Risk for Euro Zone and UK[/B]
[B]Euro Zone[/B] – The euro has garnered little fundamental momentum of its own over the past few weeks. Last week’s ECB rate decision and the G20 statement did little to clarify the euro’s future. Any bullish sentiment derived from the ECB’s smaller-than-expected rate cut was offset by Trichet’s comments that further reductions were possible and the policy authority was considering a venture into quantitative easing. The same sense of aimlessness was felt with the proposals offered by global leaders after the summit in London. The Euro-Zone had few obligations going into the meeting; and the lack of details and responsibility for objectives offered little sense that the region would have to commit additional funds to rescue global neighbors. Moving forward, the euro’s relative health will be an ongoing factor in price action. Event risk for the rest of the week is relatively light, though it could give a sense of short-term growth.
[B]UK[/B] – In contrast to the euro, the pound had a lot riding on a promising outcome to the G20’s meeting. Predicted to be the worst performing economy amongst the industrialized world with obvious financial market troubles, the United Kingdom stood to benefit tremendously from other major economies taking up some of the burden that this European economy was shouldering alone. The promising tone of the statement initially encouraged confidence; but without results this good will start to diminish. Fundamentals may help to chip the pound’s strength away. Thursday’s BoE rate decision is top risk, but look for quantitative easing rather than rate action.
[B]Data for April 7 – April 14[/B]
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[B]Data for April 7 – April 14[/B]
[B]Date (GMT)[/B]
[B]Euro Zone Economic Data[/B]
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[B]Date (GMT)[/B]
[B]UK Economic Data[/B]
April 8
German Trade Balance (FEB)
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Apr 7
Industrial Production (FEB)
April 8
German Factory Orders (FEB)
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Apr 7
Nationwide Consumer Confidence (MAR)
Apr 9
ECB Monthly Report (APR)
[B][/B]
Apr 9
BoE Rate Decision
Apr 9
German Industrial Production (FEB)
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Apr 14
RICS House Price Balance (MAR)
[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]