EURGBP Trading Strategy: Assessing All Risks

EURUSD Stop Hunt

Earlier in today’s session the European Central Bank (ECB) President, Mario Draghi, made several statements regarding the future of the ECB monetary policy. There are sufficient indications the central bank is leaning towards tightening its monetary policy in December, 2017.

The market however took advantage of these remarks to shove EURUSD higher, triggering numerous stops in the process. Simultaneously, we have also witnessed a stop hunt operation in NZD pairs and crosses, which also triggered a large number of stops in the Forex market.

The commodity currencies, particularly AUD and NZD enjoyed some gains in the Asian session as Chain industrial profits rose to 16.8%.

BOE Carney

The Bank of England (BOE) Governor, Mark Carney hinted in the press conference that households must be prepared for rate hikes. It is still unclear whether the BOE will vote to hike rates in August but Carney has suggested growth has been at the economy’s current potential, which indicates a rate hike may be appropriate.

Kristin Forbes suggested the MPC members are concerned a rate hike may be difficult to undo should the brexit talks deteriorate but the inflation figures along with rising house prices may eventually pressure the MPC members to hike rates, possibly in August.

EURGBP Daily Chart

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EURGBP Trading Strategy: Assessing All Risks

EURGBP Daily Chart 27/06/17

EURGBP Strategy

The technical entry in EURGBP is on the verge of being acceptable. We are heavily relying on the 4hr re-test of the resistance line to trigger some corrective weakness in the currency pair. As USD weakness may persist at an intraday level it is difficult to assess how it may reflect in EURGBP but we will exercise a fairly tight stop due to the technical end of the entry.

From an alternate angle, we are aware the recent EURUSD rally was sparked by a stop hunt. Based on USCHF daily chart further USD weakness may be limited to 20 – 30 pips in the pair before corrective gains may materialize. We may also opt for USDCHF at the daily close but must ensure the potential drawdown is contained.

There are several targets for EURGBP reversal, greatly depending on how long we wish to remain in the trade. We are likely to opt for the latter target (0.8690).

We are not expecting to be in a significant profit in today’s session as it is a daily entry but we are anticipating some profit by the daily close. We will determine how to proceed around the 4hr close. In an event EURGBP breaks above the 4hr resistance prior to the 4hr close or in an event moderate weakness take place prior to the 4hr close we may refrain from opting for the trade at the 4hr close and wait for the daily close.

GBPCAD Trade Alert

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EURGBP Trading Strategy: Assessing All Risks

GBPCAD 4hr Chart 26/06/17

As we were unable to capitalize over EURGBP weakness we are opting for GBPCAD.

GBPCAD long at market price (1.6874)
Take profit: 1.7300
Protective stop: 1.6690
Risk Ratio (RR): 1 : 2.4 (approx.)
Estimated duration: 7 days

Price range

Should GBPCAD trade above 1.6900 and you did not opt for the trade consider reducing the trade size or dismissing the trade.

Note: Opting for the trade around the 4hr close places us in 2 possible scenarios, immediate drawdown between 55 – 65 pips or approximately +50 pips profit by the daily close. Based on the weekly chart (as it is not the weekly close) the price can still re-test 1.6700 but we are relying on the prior 4hr bearish spike, which lowered the odds of such a re-test.

As the entry is based on the 4hr chart the gains should begin materializing within the next 24 hours. There is some key data for both GBP and CAD on Friday, we would rather not become dependent on Canada’s GDP (due on Friday).

29/06/17 UPDATE: As GBPCAD is a 4hr entry the 4hr close may be at the resistance level. We would have preferred to have seen a breakout but it is not the case at the time of this writing.

Please click on the chart to enlarge:

EURGBP Trading Strategy: Assessing All Risks

GBPCAD 4hr Chart 29/06/17

GBPCAD is trading at 1.6905 at the time of this writing, we are closing 30% of the long trade at market price and shift the protective stop to 1.6835.

By shifting the stop we will be relatively close to the market but we cannot provide much room for the cross due to the 4hr close at the resistance level.

29/06/17 UPDATE II: GBPCAD is trading at 1.6900 at the time of this writing, we closing the long trade at market price. The recent gains constitute as a second re-test of the resistance. While it can still break higher we are not adopting a wait-and-see approach as we anticipated the resistance to give way.

We are aware that US GDP may support further gains but we cannot ignore the 4hr resistance.

USDCHF Trade Alert

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EURGBP Trading Strategy: Assessing All Risks

USDCHF 4hr Chart 29/06/17

USDCHF long at market price (0.9593)
Take profit: 0.9690
Protective stop: 0.9540
Risk Ratio (RR): 1 : 2.5 (approx.)
Estimated duration: 24 hours (approx.)

Price range

Should USDCHF trade above 0.9610 consider reducing the trade size or dismissing the entry.

Note: The potential drawdown is 25 pips as we are entering after some gains already took place.

30/06/17 UPDATE: This is yet another difficult decision to make. We decided to close the long trade at market price (0.9588), which is around the entry. We will determine how we wish to proceed on Sunday.

To summarize all the updates we issued via email on USDCHF, the positive divergence kicked into play from a lower price. As a result we were prone to drift in a drawdown as the price could have re-tested the support level despite the positive interest at the rollover.

As we were aware we mistimed the entry we decided to close the long trade, we are aware USDCHF continued rising the following week.


AS ALL THE SIGNALS IN THIS PAGE ARE CLOSED THE STRATEGIES ARE NOW ACCESSIBLE TO ALL TRADERS



EURGBP Trading Strategy: Assessing All Risks

EURGBP Trading Strategy: Assessing All Risks