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EURGBP - Pending Short as 200-DMA Nears 

EURGBP - Pending Short as 200-DMA Nears 

Nick Cawley, Strategist

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EURGBP Bounce Opening a Short Trade Opportunity

Two weak currencies battling it out for dominance in a trading pair often opens the door for a short-term trading opportunity, especially after a sharp move. Both the ECB and the BoE are currently unable to proceed with any kind of monetary tightening as inflation stymies policy normalization. While UK interest rates are being pushed further back – an August 0.25% rate hike is currently priced around 42.5% - and may not happen at all this year, the first interest rate hike in the Euro-Zone is not likely until mid-2019 at the earliest and even then, it is likely to be 0.10%. In addition, with Euro-Zone growth slowing down and inflation remaining stubbornly below target (near to 2%), the ECB are likely to extend their bond buying program when it ends at the end of September for at least three months, keeping monetary policy looser for longer.

On the charts EURGBP is now nearing its most expensive level since September 2017 readings, according to the relative strength indicator and is nearing its 200-day moving average which it rejected twice in the last week.

Looking at EURGBP, today’s sharp jump in the pair – after the BOE MPC meeting – may offer an opportunity to short EURGBP. We look to open the position just above the 200-day moving average, currently at 0.88315 and will place a stop just above the intersection with the short-term upward channel at 0.89000. Our first target is the recent double low at 0.86820 with our second target at the April 17 low at 0.86200.

Chart: EURGBP Daily Price Chart (April 2017 – May 10, 2018)

EURGBP - Pending Short as 200-DMA Nears 

Entry Point: 0.88315.

Target 1: 0.86820 – Recent double low.

Target 2: 0.86200 – April 17 low.

Stop-Loss: 0.89000

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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