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EUR/GBP - The Best Pair to Apply a Hedging Strategy This Week

Thursday, 12 April 2007 15:28:43 GMT

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Written by Antonio Sousa, Currency Analyst
For Currency Pairs that are trading sideways, HEDGING is the best strategy to implement.  This involves putting a buy and sell order in the same currency pair at the same time – in one account.  Every day, we rank the major currency pairs by suitability for hedging. 

Rules for Following the Hedging Radar

1) Entry Zone -> Go both long and short at the market if the currency is at any level within the Hedging Zone. 
2) Profit Taking ->Target for the long order is the top of the entry zone, for the short order is the bottom of the entry zone.
3) Stop Levels are Key Support and Resistance Points -> Place the actual stops a few pips above the higher level and a few pips below the lower level. The break of these levels signals that the ranges have been broken and the hedging strategy should no longer be implemented.
4) The lower the Average True Range, the Less Risky the Currency is for Hedging.


Low Risk Hedging Opportunities - Currencies that are Ranging

Currency

% ATR Rank

Stop for Long

Hedging Zone

Stop for Short

Profit Range (in Pips)

EURCHF

|||||| 0.34%

1.6245

1.6350

1.6450

1.6555

100 pips

EURGBP

||||||||| 0.46%

0.6775

0.6795

0.6820

0.6875

25 pips

EURUSD

|||||||||||| 0.59%

1.3295

1.3400

1.3500

1.3675

100 pips

USDCAD

||||||||||| 0.60%

1.1095

1.1300

1.1400

1.1475

100 pips

GBPCHF

|||||||||||| 0.60%

2.3895

2.4000

2.4100

2.4205

100 pips

 

 

 

 

 

 

 

Medium Risk Hedging Opportunities - Currencies that are Volatile

Currency

% ATR Rank

Stop for Long

Hedging Zone

Stop for Short

Profit Range (in Pips)

EURAUD

|||||||||||| 0.65%

1.6240

1.6286

1.6367

1.6430

81 pips

GBPUSD

||||||||||||| 0.67%

1.9675

1.9726

1.9822

1.9914

96 pips

AUDUSD

||||||||||||| 0.70%

0.7945

0.7979

0.8180

0.8351

201 pips

CHFJPY

||||||||||||| 0.71%

96.86

97.45

97.89

98.05

44 pips

EURJPY

|||||||||||||| 0.75%

158.95

159.61

160.85

161.05

124 pips

 

 

 

 

 

 

 

High Risk Hedging Opportunities - Currencies that are Trending

Currency

% ATR Rank

Stop for Long

Hedging Zone

Stop for Short

Profit Range (in Pips)

USDJPY

||||||||||||||| 0.77%

118.40

118.75

119.52

120.05

77 pips

GBPJPY

||||||||||||||||| 0.88%

232.09

235.10

236.27

238.15

117 pips

AUDJPY

|||||||||||||||||| 0.91%

95.76

95.91

97.00

97.50

109 pips

NZDUSD

||||||||||||||||||| 0.97%

0.7096

0.7120

0.7250

0.7463

130 pips

NZDJPY

||||||||||||||||||||| 1.22%

84.65

85.15

85.57

85.79

42 pips

USDCHF

||||||||||||||||||||| 2.02%

1.2070

1.2122

1.2165

1.2205

43 pips


**How is the % ATR Rank Calculated?

The average true range is the 90 days moving average of the currency’s true range. The true range is the greatest of: the difference between the current high and the current low; the difference between the current high and the previous close or the difference between the current low and the previous close.

The %ATR is the relative value of the ATR when weighted against the price. For example, if the ATR for the EURGBP is 26 pips then the %ATR is 0.4 percent since 0.0026/0.6602 = 0.4% where 0.6602 is the quoted price of the EURGBP.

Hedging Strategy of the Week
- Entry Zone: Go both long and short at the market if the price is at any level within the 0.6795-0.6820 range
- Protective Stop: Long stop below 0.6775 and short stop above 0.6875
- Profit Target: Long Target at 0.6820 and Short Target at 0.6795
- Profit Potential: 25 pips (excluding transaction costs and slippage)

The EUR/GBP is our primary target for hedging in the week ahead, with clear range-bound trade and concrete support and resistance levels. To hedge, go both long and short at the market if price stays within the above Hedging Zone. Take profits at R1 for longs and at S1 for shorts, covering losses above R2 or below S2. 

hedge_4_12_1

Want More Information on Hedging?

The most effective way to capitalize on currencies pairs that trapped in tight ranges is through the use of hedging. The hedging feature is currently available on all accounts using FXCM’s No Dealing Desk service.  For more information on FXCM hedging strategies please visit http://www.fxcm.com/hedging.jsp 


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