Ranges have become rather prevalent across the currency market, allowing us to be more selective in choosing our congestion trade. Scanning the charts, and taking account of the potential event risk attached to each one, few pairs look as attractive as EURGBP for a range trade. After a momentous rally, spot has now come upon resistance seen around 0.75. This ceiling has been formed by a number of notable yet independent technicals – increasing its exposure to the market and improving the odds that it will hold.
Trading Tip – Ranges have become rather prevalent across the currency market, allowing us to be more selective in choosing our congestion trade. Scanning the charts, and taking account of the potential event risk attached to each one, few pairs look as attractive as EURGBP for a range trade. After a momentous rally, spot has now come upon resistance seen around 0.75. This ceiling has been formed by a number of notable yet independent technicals – increasing its exposure to the market and improving the odds that it will hold. Our stop is not very wide notionally; but considering the pair’s typical volatility and the proximity of resistance, it is respectable. On the other hand, a 30 point stop and 30 point first target may seem small, but considering profit and loss are calculated in pound points, both are about standard with our normal risk/reward setup. To reduce risk, we will cancel any open orders by next Friday or should spot hit 0.7440 before we are entered.
Event Risk Euro Zone and UK
Euro Zone – European event risk will be relatively limited in the week ahead, with the likely highlight of the week to come on February 22’s Purchasing Managers Index reports. Given overall fears on the future of EMU growth, traders will pay very close attention to any signs that economic activity is slowing in key Manufacturing and Services sectors. PMI reports are widely viewed as leading indicators for economic activity, and any particularly noteworthy surprises could easily drive volatility across Euro pairs. Otherwise traders will watch the results of German PPI data on the 20th and a second-tier Euro Zone Industrial New Orders release on the 22nd.
UK – British economic event risk will revolve around key Bank of England Minutes on the 20th and a highly-anticipated Retail Sales report on the 21st. BoE Minutes typically force major volatility across British Pound currency pairs, but this particular release may be of decreased significance following the recent Bank of England Quarterly Inflation Report. That said, traders may nonetheless respond to any surprises in the BoE’s voting to cut rates by 25 basis points at its February 7 meeting. Strong dissent in favor of unchanged interest rates would easily force a short-term rally in the GBP, while a unanimous vote in favor of the rate cut may have the opposite effect. The next day’s Retail Sales data may likewise drive major moves across British Pound currency pairs. Current consensus forecasts call for a healthy rebound in retail sales, but any disappointments could easily cause a GBP selloff. The opposite of course remains true, and a strong release would boost outlook for UK economic growth.
[B]Data for February 17 – February 25[/B]
[B][/B]
[B]Data for February 17 – February 25[/B]
[B]Date[/B]
[B]Euro Zone Economic Data[/B]
[B][/B]
[B]Date[/B]
[B]UK[/B][B] Economic Data[/B]
Feb 19
Construction Output (DEC)
[B][/B]
Feb 20
Bank of England Minutes
Feb 20
German Producer Prices (JAN)
[B][/B]
Feb 20
Public Finances (JAN)
Feb 21
Euro Zone Current Account (DEC)
[B][/B]
Feb 20
CBI Industrial Trends (FEB)
Feb 22
Euro Zone PMI Composite (FEB A)
[B][/B]
Feb 21
Retail Sales (JAN)
Feb 22
Euro Zone Industrial New Orders (DEC)
[B][/B]
Feb 25
Nationwide House Prices (FEB)
Want to know what other traders are forecasting for the euro and pound? Check out the DailyFX forum.
[I]Written By: David Rodriguez and John Kicklighter, Currency Analysts for DailyFX.com
To contact David or John about this or other articles they have authored, please contact them at <[email protected]> or <[email protected]>. [/I]