[B]My picks:[/B] Long GBPJPY
[B]Expertise:[/B] Combining Money Management with Fundamental and Technical Analysis
[B]Average Time Frame of Trades:[/B] 3 days - 1 week
I have been following EURGBP for a few weeks now, taking stock of the congestion that has developed in a potential head-and-shoulders formation (with a neckline around 0.8785). I have taken various range opportunities in this pair for a few weeks; but the real opportunity is for a breakout from the wedge formation now set between the aforementioned floor and a falling trendline now at 0.90. This was my primary strategy from last week, but clearly we have not seen a true breakout develop as of yet. In the meantime, my reduced-sized short range has yielded modest returns as I wait. With another look at the sterling this morning; a breakout still seems viable. As such, I’ll keep monitoring this pair for a confirmed break through 0.90 or 0.8775 (a bearish outcome would be preferable).
However, while waiting for this potential setup to play out, I see activity opportunities elsewhere. GBPJPY has developed a rising trend channel since the beginning of February and four clear and precise tests with sharp reversal tails. Trends have been risky patterns recently as unexpected volatility and changing risk patterns have led many formations to simply breakdown. The development in price action for this pair is appealing for its consistency and the relatively gentle slope the channel has taken (reducing the threat of a reversal). It looks like the rising 50-day SMA may act as support at 143.70 but the firm trendline is down around 141.75. As such, my stop will have to cover hardlevel (and if I want to be very conservative it should also cover 140.75 as this has been a major support and resistance level since October). Clearly this leverages notional risk; so I will lower my position size to compensate. A first target should equal risk and the second can be conservative and be set well below the double top at 150 or aggressive and hold out for a bullish breakout.