Last week, we were looking at EURGBP for a range trade. The technical interest in this pair followed a pressurized head-and-shoulders formation while fundamentals pointed to a long-term shift in the interest rate and growth bias. Today, we are on the opposite side of the same range; but the situation is very different.
Why Would EURGBP Hold a Range?
· Levels to Watch:
-Range Top: 0.9020 (Trend, Fibs, SMAs)
-Range Bottom: 0.8790 (Range Low, Fib)
· There is back and forth in EURGBP that has yet to be resolved through Fundamentals. The long-term outlook for the UK has long drawn a consensus for the worst performing, industrialized economy. On the other hand, the Euro Zone’s benchmark lending rate (one of the primary catalysts for euro strength) has steadily fallen while recent growth readings from the region reveal a deeper recession than many though. Is the euro more stable than the pound?
· The technical scene for EURGBP is plentiful but somewhat complex. Starting with the long-term view of the market, we have a struggle for a gradual, bearish reversal following the record high set at the end of 2008. And, while this turn has stalled, it has produced a clear line in the sand for a breakout. An extended range and Fib floor around 0.88 is key.
Suggested Strategy
· Short: Half-sized entry orders will be placed at 0.8805 aims to find entry near support.
· Stop: An initial stop of 0.8745 looks only to cover the spike low from May 7th. To secure profit, move the stop on the second lot to breakeven when the first target hits.
· Target: The first objective equals risk (60) at 0.8865 and the second target will be 0.8930.
Trading Tip – Last week, we were looking at EURGBP for a range trade. The technical interest in this pair followed a pressurized head-and-shoulders formation while fundamentals pointed to a long-term shift in the interest rate and growth bias. Today, we are on the opposite side of the same range; but the situation is very different. A cursory look at a daily chart reveals the head-and-shoulders pattern that has been in development since February offers a clear breaking point in its ‘neckline’ around 0.8800/750 for what is looking more and more like a gradual, bearish reversal. A break at this level could potentially signal a major shift in market sentiment; and as such, it would likely take a prominent economic driver to catalyze such a move. Looking at the economic docket, there are more than a few indicators that are noteworthy. On the other hand, few of the releases have the necessary sway to drive such a dramatic change in market direction – a boon for our range setup. Our entry is set below today’s low; but this is necessary to maintain a reasonable risk/reward profile. However, things can still change quickly should momentum develop from an unforeseen event. To account for this threat, we have set the stop just below recent lows to cut risk quickly. We have also cut our position size in half (we are dealing with pound pips) to further lower our risk. If this entry doesn’t trigger by tomorrow’s US session close, we will cancel all pending orders.
Event Risk for Euro Zone and UK
Euro Zone – The euro may have assimilate the most influential round of event risk the currency has seen since the ECB’s rate decision two weeks ago. A sharper than expected, negative revision to first quarter GDP subverts the market’s attempt at calling an early recovery from this economic leader. What’s more, it tips the scales on the argument for further rate cuts and expanding the bank’s unorthodox covered bond plan. This will hold over the market as each day passes without a severe shock to general risk appetite. Looking at the economic docket this week, the euro has a number of indicators that could add to the disappointing outcome of the growth figures. The PMI numbers are the most influential considering they will give a leading measure of growth from the business side of the market. The ZEW survey will offer a sentiment view of things. As investors are the most speculative of economic groups, their outlook on growth and monetary policy will be taken seriously by the market. UK – At one point in the past, each of the scheduled events and indicators on the UK docket was a primary driver for the sterling. Today, however, these indicators hold less tout for the fundamental crowd. While each is important from an economic perspective (they all feed into the medium-term growth and interest rate outlook), each is simply a component of the larger concern about growth and returns in the United Kingdom when everything is said and done. For surprise and market-movement quotient, the preliminary reading for GDP could offer drive. As the first revision, there is no adjustment expected; but given the market’s focus on this front, a shift would be market moving. Potential also rests with the CBI trends report as a leading and long-term gauge for manufacturing health.
Data for May 19 – May 26
Data for May 19 – May 26
Date (GMT)
European Economic Data
Date (GMT)
UK Economic Data
May 19
German ZEW Survey (MAY)
May 19
CPI (APR)
May 21
Euro Zone PMI Composite (MAY A)
May 20
Bank of England Minutes
May 25
German IFO – Business Climate (MAY)
May 20
CBI Industrial Trends Total Orders (MAY)
May 26
Euro Zone Industrial New Orders (MAR)
May 21
GDP (1Q P)
Why Would EURGBP Hold a Range?
· Levels to Watch:
-Range Top: 0.9020 (Trend, Fibs, SMAs)
-Range Bottom: 0.8790 (Range Low, Fib)
· There is back and forth in EURGBP that has yet to be resolved through Fundamentals. The long-term outlook for the UK has long drawn a consensus for the worst performing, industrialized economy. On the other hand, the Euro Zone’s benchmark lending rate (one of the primary catalysts for euro strength) has steadily fallen while recent growth readings from the region reveal a deeper recession than many though. Is the euro more stable than the pound?
· The technical scene for EURGBP is plentiful but somewhat complex. Starting with the long-term view of the market, we have a struggle for a gradual, bearish reversal following the record high set at the end of 2008. And, while this turn has stalled, it has produced a clear line in the sand for a breakout. An extended range and Fib floor around 0.88 is key.
Suggested Strategy
· Short: Half-sized entry orders will be placed at 0.8805 aims to find entry near support.
· Stop: An initial stop of 0.8745 looks only to cover the spike low from May 7th. To secure profit, move the stop on the second lot to breakeven when the first target hits.
· Target: The first objective equals risk (60) at 0.8865 and the second target will be 0.8930.
Trading Tip – Last week, we were looking at EURGBP for a range trade. The technical interest in this pair followed a pressurized head-and-shoulders formation while fundamentals pointed to a long-term shift in the interest rate and growth bias. Today, we are on the opposite side of the same range; but the situation is very different. A cursory look at a daily chart reveals the head-and-shoulders pattern that has been in development since February offers a clear breaking point in its ‘neckline’ around 0.8800/750 for what is looking more and more like a gradual, bearish reversal. A break at this level could potentially signal a major shift in market sentiment; and as such, it would likely take a prominent economic driver to catalyze such a move. Looking at the economic docket, there are more than a few indicators that are noteworthy. On the other hand, few of the releases have the necessary sway to drive such a dramatic change in market direction – a boon for our range setup. Our entry is set below today’s low; but this is necessary to maintain a reasonable risk/reward profile. However, things can still change quickly should momentum develop from an unforeseen event. To account for this threat, we have set the stop just below recent lows to cut risk quickly. We have also cut our position size in half (we are dealing with pound pips) to further lower our risk. If this entry doesn’t trigger by tomorrow’s US session close, we will cancel all pending orders.
Event Risk for Euro Zone and UK
Euro Zone – The euro may have assimilate the most influential round of event risk the currency has seen since the ECB’s rate decision two weeks ago. A sharper than expected, negative revision to first quarter GDP subverts the market’s attempt at calling an early recovery from this economic leader. What’s more, it tips the scales on the argument for further rate cuts and expanding the bank’s unorthodox covered bond plan. This will hold over the market as each day passes without a severe shock to general risk appetite. Looking at the economic docket this week, the euro has a number of indicators that could add to the disappointing outcome of the growth figures. The PMI numbers are the most influential considering they will give a leading measure of growth from the business side of the market. The ZEW survey will offer a sentiment view of things. As investors are the most speculative of economic groups, their outlook on growth and monetary policy will be taken seriously by the market. UK – At one point in the past, each of the scheduled events and indicators on the UK docket was a primary driver for the sterling. Today, however, these indicators hold less tout for the fundamental crowd. While each is important from an economic perspective (they all feed into the medium-term growth and interest rate outlook), each is simply a component of the larger concern about growth and returns in the United Kingdom when everything is said and done. For surprise and market-movement quotient, the preliminary reading for GDP could offer drive. As the first revision, there is no adjustment expected; but given the market’s focus on this front, a shift would be market moving. Potential also rests with the CBI trends report as a leading and long-term gauge for manufacturing health.
Data for May 19 – May 26
Data for May 19 – May 26
Date (GMT)
European Economic Data
Date (GMT)
UK Economic Data
May 19
German ZEW Survey (MAY)
May 19
CPI (APR)
May 21
Euro Zone PMI Composite (MAY A)
May 20
Bank of England Minutes
May 25
German IFO – Business Climate (MAY)
May 20
CBI Industrial Trends Total Orders (MAY)
May 26
Euro Zone Industrial New Orders (MAR)
May 21
GDP (1Q P)
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