The EUR/GBP is historically known for its small trading ranges and marginal volatility compared to other major pairs. This week, we find ourselves in a breakout environment. Starting back from October of 2008 we can view a pennant formation developing with a strong break rising above support occurring on March 24, 2011.
Fundamentally, both of these pairs have much in common as the UK and Europe are regional trading partners. However, the ECB (European Central Bank) took the initiative and breathed fresh life into the Euro last Monday. Benchmark interest rates in Europe were moved to 1.25% from a historic low of 1% in order to fight inflation. As money continues to follow yield, this past rate hike with the possibility of more in the future bodes well for future Euro strength.
Price Action
Taking price in to a 4hr chart, we can find a solid up trend in place dating back to the February 15th low of .8355. Looking back, we can see that there have been many tests of the 4hr trend line adding to its strength and validity. As price has been unable to penetrate resistance, selling opportunities are minimal until price creates a lower low, under this level.
Trading Opportunity
Our ascending triangle being a bullish continuation pattern should get us looking for buying opportunities with the direction of the longer term trend. My preference is to place buy orders near our 4hr trend line close to the .8775 handle. Stops should be set below our trend line below our previous low near the .8700 level. Using our 1:2 Risk-Reward setting for the trade limits should be located at .8925 or higher.
Walker England contributes to the Instructor Trading Tips articles.
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