EURGBP Brexit Signal: EU Summit

We have seen fairly strong volatility in the past week as the VIX climbed above 20. The US treasury yields were the main focus as well as the trade tension between the United States and China. Italy also played a major role in the market volatility as the proposed budget for 2019 concerned investors.

Following China’s trade balance figures that came in above the market expectations some recovery in global equities was seen on Friday. We should it is not necessarily an indication China was unaffected by the tariffs. A possible scenario is that US exporters rushed to buy goods from China in fear more tariffs are introduced.

A crucial brexit summit is expected to take place this week as well as China GDP, which we are the key events this week. On Thursday we updated that we are looking into shorting GBP. As GBP is expected to gap lower we are uncertain whether we can initiate the trade.

EURGBP 4hr Chart

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EURGBP Brexit Signal: EU Summit

EURGBP 4hr Chart 14/10/18

Initiating a long trade following a bullish gap often suggest some drawdown will be seen. We may have the ability to absorb the potential drawdown but we must proceed caution in light of EURNZD and USDCAD.

In GBP pairs and crosses the firmer entries we noted on Thursday were GBPCHF and EURGBP. We are reluctant to hold long CHF positions EURGBP is our alternative despite the tension in Italy. If timed correctly EURGBP potential trade may be closed by the end of the week.

It is important to stress that EURGBP is not correlated to EURNZD. Our focus is on GBP and EUR.

EURGBP Trade Alert

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EURGBP Brexit Signal: EU Summit

EURGBP 4hr Chart II 14/10/18

EURGBP long at market price (ask 0.8813)
Take profit: 0.8975
Protective stop: 0.8750
Risk Ratio (RR): 1: 2.2 (approx.)
Estimated duration: 8 days

Relevant as long as EURGBP is below 0.8837

Note: The long trade is initiated following a gap higher ,which may indicate some drawdown will be seen, a re-test of 0.8790. The odds of some drawdown are higher due to the gap but we can absorb it should it materialize.

We had an indication on Thursday GBP may weaken, we were not expecting a gap at the opening of the Forex market. The Brexit summit on Thursday is the key event.

16/10/18 UPDATE: EURGBP was knocked lower due to the economic data (UK) that was released during the European session. The price missed the protective stop before correcting higher.

As the price may re-test today’s lows (which is not guaranteed but must be anticipated) we are shifting EURGBP protective stop to 0.8739.

GBPJPY Trade Alert

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EURGBP Brexit Signal: EU Summit

GBPJPY Daily Chart 19/10/18

GBPJPY short at market price (bid 146.94)
Take profit: 143.50
Protective stop: 148.75
Risk Ratio (RR): 1: 2.0 (approx.)
Estimated duration: 14 days

Relevant as long as GBPJPY is above 146.70

Note: The potential drawdown is a re-test of 147.80. The recent gains in GBPJPY were triggered by remarks from BOE Carney. We are increasing our exposure to GBP following the corrective gains in the cross.

This is a daily entry timed via the 4hr chart, which is why we are not waiting for the weekly close.

22/10/18 SIGNAL UPDATE: EURGBP is trading at 0.8841 at the time of this writing, we are closing 20% of the long trade at market price.

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EURGBP Brexit Signal: EU Summit

EURGBP 4hr Chart 22/10/18

We are shifting EURGBP protective stop to 0.8790.

22/10/18 SIGNAL UPDATE II: GBPJPY is trading at 146.31 at the time of this writing, we are closing 20% of the short trade at market price.

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EURGBP Brexit Signal: EU Summit

GBPJPY Daily Chart 22/10/18

23/10/18 SIGNAL UPDATE: GBPJPY is trading at 145.95 at the time of this writing, we are closing the short trade at market price. We should highlight that there is no guarantee such a retracement will materialize but we are noting the risk.

EURGBP is trading at 0.8831 at the time of this writing, we are closing the long trade at market price. The volatility we have seen in today’s session across global equities may have altered the outlook for the EURGBP. We do have the ability to tighten the protective stop but the odds for a deeper retracement (bearish) is higher.

GBPAUD Trade Alert

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EURGBP Brexit Signal: EU Summit

GBPAUD Daily Chart 24/10/18

GBPAUD long at market price (ask 1.8245)
Take profit: 1.8650
Protective stop: 1.8064
Risk Ratio (RR): 1: 2.1 (approx.)
Estimated duration: 14 days

Relevant as long as GBPAUD is below 1.8280.

Note: This is a daily entry. As some corrective gains took place from the daily low there are some risks for the price to re-test the lows in tomorrow’s session. Such re-tests are challenging to predict, which is why we are willing to absorb the potential drawdown.

Should the retacement (bearish) take place on Friday the corrective gains are expected to take place at the beginning of next week. During a risk aversion mode AUD tends to weaken against a basket of currencies. We cannot rule out some corrective gains in GBP but at the time of this writing we suspect it may be linked to AUD.

The potential drawdown is a re-test of 1.8190. We providing more room for the trade as GBPAUD is an extremely volatile cross. In an event we will be too close to the market prior to the weekly close we may temporarily widen the protective stop as the spread tends to widen at the opening of the market.

25/10/18 SIGNAL UPDATE: We are temporarily shifting GBPAUD protective stop to 1.8000. There is a risk for another leg lower before corrective gain may materialize. We will re-adjust the protective stop after the daily close.

1.0895 is holding at the time of this writing but may be re-tested prior to the daily close.

25/10/18 SIGNAL UPDATE II: We noted the risk for a bearish spike, which is why we shifted the protective stop prior to the daily close. The bearish spike appears to have been a stop hunt.

We are shifting the protective stop to 1.8028. GBPAUD may easily trade over 200 pips in a single day, it is an extremely volatile cross. There are early indications for corrective gains at the time of this writing.

In an event we are too close to the market prior to the US GDP (tomorrow) we may be forced to provide more room for the trade due to the spread widening.

28/10/18 SIGNAL UPDATE: This was a fairly tough decision as our stance is incur losses when required. To recap, we anticipated AUD weakness, which materialized. As GBPUSD was held in a range on Friday and failed to benefit from USD weakness GBPAUD was pressed lower (as AUDUSD kicked higher).

GBPAUD may still be positioned for corrective gains but we are unwilling to provide too much room for the trade. We ensure all stops may be recovered in future trades if triggered. This was a tough decision, we are shifting GBPAUD protective stop to 1.7970.

Australia’s CPI is the key economic figure GBPAUD aside the UK budget and brexit-related news. We remind that GBPAUD is a cross that may easily trade over +200 pips in a single day.

30/10/18 SIGNAL UPDATE: GBPAUD triggered the protective stop, we are not re-entering the market. We have been monitoring the cross since the European open, we will not continuously widen stops in an effort to remain in the market.

Last Updated on November 4, 2018