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.
Any news, opinions, research, analysis, prices or other information contained on the trading.co.uk website are provided as general Market commentary and do not constitute investment advice. Trading.co.uk is not liable for any loss or damage, including without limitation, any loss of profit which may arise directly or indirectly from use of or reliance on such information.