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Talking Points:

  • Potential False Breakout for EUR/GBP
  • Gartley Pattern Completing on Daily Chart
  • Structuring a Trade with "Exceptionally" Low Risk

As many major currencies continue to fluctuate within consolidating patterns, EURGBP seems to be presenting quite an interesting technical trade set-up.

The daily chart below shows a triangle breakout within a consolidation zone. At this daily level of analysis, however, the trend direction is not at all clear, and it might be fairest to call it sideways. However, interested traders may look to the weekly chart (not shown) to discover that generally bullish momentum holds true for EURGBP.

Guest Commentary: Daily Triangle Breakout in EUR/GBP

A potential false breakout from a triangle consolidation pattern is evident on the daily chart of EUR/GBP.

In a sideways market, prices are always more prone to being whipsawed, but the presence of a secondary price pattern makes this particular set-up even more interesting. Here, that comes in the form of the Gartley pattern that is now beginning to complete on the below daily chart. The first pullback respected the 61.8% retracement of the original move, and should the next leg react at the 78.6% retracement, as a standard Gartley pattern would anticipate, the resulting move would be bullish.

Guest Commentary: Gartley Pattern Completing in EUR/GBP

A Gartley pattern appears to be completing on the daily chart of EUR/GBP.

A decent move upwards to test the Gartley high could contain 180 pips or more, which is quite significant for this slow-moving pair, and that makes it all the more possible for traders of all risk appetites to structure trades with appropriate risk profile.

The four-hour chart below readily provides a zone of support around the anticipated 78.6% Gartley reaction level, as indicated. The zone turns out to be 0.8205-0.8228, which is an exceptionally small 23 pips. More aggressive traders could simply initiate a long trade with a stop past the support zone and a stop loss of 30 pips, but it would be most preferable to wait for a trade trigger to occur on the hourly chart (not shown).

Guest Commentary: Key Support Zone for Buying EUR/GBP

Strong support levels on the 4-hour chart of EUR/GBP create a very narrow zone that can be used to control risk for new long positions.

Viable trade triggers would consist of pin bars, bullish reversal divergence, and/or bullish engulfing patterns on the hourly chart. Even though two or three attempts may be required to hop on to this move, the very favorable risk profile makes this trade highly worthwhile.

The slow-moving nature of EURGBP can often test a trader's patience, but nonetheless, it is quite nice to see a confluence of a trend line breakout and a Gartley pattern. Afterall, the most rewarding trades often occur on the heels of such false breakouts when traders are properly positioned to trade the long side, in this case.

By Kaye Lee, private fund trader and head trader consultant,