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EUR/GBP Channel Scalp- Pending Break Below 8650

EUR/GBP Channel Scalp- Pending Break Below 8650

2011-09-26 20:12:00
Michael Boutros, Technical Strategist
Share:
EURGBP_Channel_Scalp-_Pending_Break_Below_8650_body_Picture_2.png, EUR/GBP Channel Scalp- Pending Break Below 8650

The EUR/GBP has continued to trade within a descending channel formation since the July high around 0.9050. Today’s break of the convergence of the 200-day moving average and the 38.2% Fibonacci extension taken from the July 1st and August 29th at the 0.87-figure sees increased risk for further losses for the pair. A look at daily relative strength also suggests the pair may remain under pressure with RSI rebounding off of interim resistance just above the 50-mark. As the situation in the Euro zone continues to deteriorate, we see scope for an increase in flows into the sterling which was the highest performing currency against the euro today. Accordingly our bias will be weighted to the downside noting that anther test of the 200-day moving average may be in the cards.

EURGBP_Channel_Scalp-_Pending_Break_Below_8650_body_Picture_3.png, EUR/GBP Channel Scalp- Pending Break Below 8650

A 30min chart sees the pair holding within a well defined descending channel formation dating back to the 14th. The pair failed to close below the 38.2% Fibonacci extension taken from the September 8th and 15th crests at 0.8670, and could see a test of interim resistance before breaking trendline support.Preferred short entry targets are held at 0.8690 with subsequent ceilings eyed at the 23.6% extension at 0.8715, and 0.8740. Profit targets are held at the 50% extension at 0.8635, 0.8615, and the 61.8% extension at 0.8595.

Key Thresholds

With a 1-hour average true range of 22.11 profit targets on said scalp should remain between 17-22 pips depending on entry. We reckon a break above the topside limit at 0.8770 negates the bias with such a scenario eyeing topside targets at 0.8790 and 0.8820.

*Note the scalp will not be active until a confirmed break below the convergence of trendline support and the 0.8650 support level or a rebound off the 0.8690 resistance level with RSI conviction. A topside test of trendline resistance also may be in the cards before we break lower. Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Entry/Exit Targets

Timeframe

Level

Resistance 1 Target

30min

0.8690

Resistance 2 Target

30min

0.8715

Resistance 3 Target

30min

0.8740

Topside Limit

30min

0.8770

Topside Limit Break-Target

30min

0.8790

Support 1 Target

30min

0.8635

Support 2 Target

30min

0.8615

Support 3 Target

30min

0.8595

Bottom Limit

30min

0.8570

Bottom Limit Break-Target

30min

0.8550

Reference Values

Indicator

Timeframe

Level

50-SMA

Daily

0.8756

100-SMA

Daily

0.8792

200-SMA

Daily

0.8706

RSI

Daily

44.34

Average True Range (14)

1hour

22.11

Related Economic Data Releases

Notwithstanding further developments out of Europe, event risk for the pair is rather negligible with only the German GFK consumer confidence and UK CBI sales on tap. Consensus estimates call for an October confidence print of 5.0, down from a previous read of 5.2, while CBI reported sales are expected to slump further with a September print of -15. The data it expected to confirm concerns of a global slowdown as confidence and sales continue to slump. Further developments regarding the debt crisis in the EU region are likely to impact our setup more substantially as we saw today. News that officials had come up with a credible plan to expand the EFSF program saw the euro whipsaw before surging higher against the dollar. That said, we will remain flexible with our bias here as we await further updates on the composition of the proposed plan.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

EUR

9/27

6:00

MEDIUM

German GfK Consumer Confidence Survey (OCT)

5.0

5.2

UK

9/27

10:00

MEDIUM

CBI Reported Sales (SEP)

-15

-14

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForexfor updates on this scalp and other trades.

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