EUR/GBP Forming Opportunity to Go Short at 0.9119.

Last updated 12/8/2009 7:34 PM EST (GMT -5) 4 Comments

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Bradley W. Gareiss

Technical Analyst, GFT

A bearish Gartley pattern is forming on the EUR/GBP. The pattern itself is solid, but there is a ton of extra convergence at the sell entry. First, we have circled a previous high near the entry on the 2hr Chart. The 8hr Chart has 3 separate levels that work. We only could draw one trend line because the chart was getting crowded, but if we also started a trend line at Y1, it would also come in at the same area as the trend line that was drawn. It would be lower, but it would work. There are also two Fibonacci levels (50% of Y1Z and 127.2% of Y2Z) that occur at almost the exact entry. If this trade completes with decent time symmetry it would be a well above average trade.

We will look to sell the EUR/GBP if it rises to 0.9119 (Point D). Point D is located at the convergence of the following points:

This is a fairly straightforward trade so we will jump into possible red flags that could invalidate this trade. First, we need to watch how quickly CD completes. We are looking for the CD leg slow down and enter the trade near our hypothetical entry on the 2hr Chart. If there are long bars near the completion of the CD leg, we will not take the trade. If the pair comes within 7 pips of reaching our entry, does not enter, and reaches T1 before entering, the trade is invalid. The trade is also invalid if the pair falls below 0.9005 before hitting our entry.

To recap, we will look to sell the EUR/GBP at 0.9119 with our stop placed at 0.9139. Our initial profit targets are 0.9089 (38.2% of CD) and 0.9063 (61.8% of CD).

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  • 8hr Chart - Multiple points of resistance at the entry (0.9119).
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  • 2hr Chart - Bearish Gartley; sell at 0.9119.

Comments (4)

Semaj

December 08, 2009 at 08:25 PM ET

B, on the 8 hr chart the last swing low retraced greater than 100% and now could use the high of that swing as a support area. If so isn't that a bullish sign if it reaches your entry zone without a deeper retracement? On a daily chart you see that the bottom of the prior 8 hr trend is a pullback & hits a 50% fib level & a 50 period ma in a continuation setup. So, wouldn't it be more probable for entries on the long side in this case? Just a thought :)

bgareiss

December 08, 2009 at 10:01 PM ET

We will see, but there is a ton of resistance around 0.9119. Any pattern can fail, but this is about as good as it gets. Of course, if no one wanted to go long at 0.9119, then how would the short trade get filled? Without contrasting views on the markets there would be no price action to trade in the first place. Back to your question, I think I understand what you are getting at, but if you send me a screen shot of your chart (bgareiss@gftforex.com), then I would know for sure I am looking at the same thing you pointed out. Regardless, this is definitely a trade I would take if it completes with decent time symmetry. Brad

dnagold

December 09, 2009 at 09:37 AM ET

Now that the pair has made a new c leg what do you think about the 786 fib is the pattern still good

bgareiss

December 09, 2009 at 01:21 PM ET

It is probably still good as the trade was just barely invalidated. We will likely redraw this trade so that the pattern reflects the lower point C. The other concern is that CD is rising fairly rapidly now. I would wait to see if the pair slows down and see what shakes out tonight around the time when the report is sent out (6 pm central time). If no update is posted for the EUR/GBP trade tonight, that means the trade is definitely invalidated. Brad

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