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A "Slow-Burning" EUR/GBP Trade with Lots to Like

A "Slow-Burning" EUR/GBP Trade with Lots to Like

Liam McMahon, Head Forex Trading Instructor

Talking Points:

  • ECB, BoE Both Leave Rates Unchanged
  • EUR/GBP Breaks Key Trend Line Resistance
  • Entry, Stop, and Target Levels for This Trade

The euro (EUR) has traded stronger today after the European Central Bank (ECB) left interest rates unchanged (as expected) and did not announce any plans for any new liquidity measures.

While the majority of the market was likely expecting a similar outcome, enough people were betting that new long-term refinance obligations (LTROs), or another such funding scheme, would be announced, and as a result, we saw EUR squeeze higher against all major currencies.

Specifically, EURGBP is up 0.92% today after the Bank of England (BoE) left interest rates unchanged in the UK as well. The announcement left British pound (GBP) bulls looking for another catalyst to push the pound higher.

The difference between the two currencies now offers a potential long EURGBP trade, as the pair has broken above its descending trend line dating back to late October.

Guest Commentary: Potential Long Set-up in EUR/GBP

At the time of writing, the 200-period exponential moving average (EMA) and 38.2% Fibonacci retracement level at 0.8379 is capping price, and any pullbacks towards 0.8350 and 0.8325 would offer excellent opportunities to get long. In that case, stops would be placed just below 0.83, targeting first 0.8425 (the 50% Fib level) and then 0.8450 (the 61.8% Fib level).

This pair tends to be a slow burner, but it is also well isolated from US dollar (USD) volatility, which makes it especially attractive as we enter a key month for the greenback.

By Liam McMahon, Currency Strategist, GlobalFxClub.com

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

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