All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

EUR/GBP at 4-year Lows, .8000 to Cap Bounces

Last updated 7/9/2012 1:55 PM EST (GMT -5) 0 Comments - Add your comment

• Share this:

Matthew Weller

Technical Analyst, GFT

Follow @MWellerFX

With all the hullabaloo about the EUR/USD setting new 2-year lows below 1.2300 in the wake Friday’s Non-Farm Payroll announcement, another significant development has slipped mostly under the radar: the EUR/GBP slipped below .7950 for the first time since late 2008. Significantly, this break lower followed a shallow, 38.2% Fibonacci retracement on the daily chart. As we’ve pointed out before, a shallow retracement followed by a break to new lows shows that the market is in a strong trend and often leads to a strong continuation to the downside.

Zooming in to the 4hr chart only strengthens the bearish bias, presenting a clear sell opportunity. The pair has broken below the Monthly S1 pivot at .7978; this level of previous support is likely to provide resistance if the unit manages a modest bounce. Even if that level fails to cap rates, key psychological resistance at the round .8000 handle is likely to hold the EUR/GBP down. Selling at current market rates may be risky with near-term support likely at the round .7900 handle and Monthly S2 pivot (.7895), so a brief retracement can be used to provide a strong entry into a sell trade.

To take advantage of the clear bearish bias, traders could set a limit sell order at .7970 (just under the Monthly S1 pivot) with a stop at .8010 (above the round .8000 handle) and a target at .7905 (above the round .7900 handle and Monthly S2 pivot at .7895). This trade would be invalidated if not triggered in the next 48 hours, or by a drop down to .7905 prior to entry

Potential Strategy: Sell if EUR/GBP bounces to .7970, stop at .8010, target at .7905.

For more intraday analysis and trade ideas, follow me on twitter ( @MWellerFX ) and attend our daily Live Market Analysis webinars. Visit your local GFT website under “Seminars and Webinars” to sign up.

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Futures & Forex, Ltd. (“GFT Markets”) and FX360.com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of GFT Markets, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. GFT Markets and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

Loading...

About The Author

Matthew Weller has been actively trading the various financial instruments including stocks, options, and forex since 2005. From his first exposure to forex, Matt was fascinated by the vast liquidity and volatility offered 24 hours a day in the forex market. He has specialised in currency trading ever since.

Matthew focuses on candlestick patterns and pivot points to identify logical trade entries and exits. In addition, he has discovered a passion for teaching others about trading and has conducted over 400 educational webinars on different aspects of trading the forex market. His analysis has been quoted in Reuters, MarketWatch, and on the NASDAQ newswires.