This week has heavy event risk with a notable European Central Bank and Bank of England rate decisions tomorrow morning. The ECB is expected to hike rates which is fueling the EURGBP to higher prices.
I will admit that I am a bit surprised to see the EURGBP break above its formidable resistance prior to these news releases and FOLLOW THROUGH on the breakout! This is indicating some inherent strength to the pair and now is the time to formulate a trading strategy for this cross pair.
(Created using FXCM’s Marketscope 2.0 Charts)
The trend on the pair is now confirmed to the upside with the break above .8925 - .8940 zone yesterday. This breakout has longer term implications that could eventually challenge the .9800 highs over time. Our current challenge is to find an optimal entry buying the pair while minimizing the risk.
Timing the Entry
It is possible that prices are going to consolidate the recent move up prior to the rate decisions tomorrow morning. If prices soften into the .8940 - .8975 zone, that will help us catch a better entry into this new uptrend. This zone is identified as being just above the former resistance areas. After a successful breakout, many times, prices will return to that point of breakout which is a good opportunity for us to enter the trade.
(Created using FXCM’s Marketscope 2.0 Charts)
A conservative trader will want to place a stop below .8730. A more aggressive trader will look for a stop loss in the .8840 area. At either location, this trade does have some significant potential so utilizing a manual trailing stop will give our trade breathing room to potentially catch the bigger move.
As with any trade, make sure you are risking a small portion of your account balance on all open trades. We suggest risking less than 5% of your balance on all open trades.
Happy Trading!
Jeremy Wagner contributes to the Instructor Trading Tips articles.
http://www.dailyfx.com/how_to_trade_forex/course_trading_tips
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