EUR GBP Short Term Trading Analysis: Despite major catalysts and market moving events in the past week, the majority of forex pairs appear to be in the middle of a summer consolidation. However, combining the fundamental, technical and market sentiment aspects of the IDDA for a EUR GBP short term trading analysis shows there could be potential for a new opportunity. I have already sent out the EUR/GBP short term trading strategy to our investing group members and will cover trading opportunities for other currency pairs in a live strategy development session later this week.
Note that this signal has been marked HIGH RISK because we only have one Ichimoku confirmation, ONLY on the 4-hour chart. Traders with low risk tolerance should conduct proper risk management before following this signal.
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1- Technical Points: EUR GBP Short Term Trading Analysis
4-Hour Time Frame: The Tenkan line of the Ichimoku Kinko Hyo moving averages crossed below the Kijun line during Monday’s Asian session. This is the first trigger of our Ichimoku Secrets strategy. The Chiko span has just entered the Ichimoku cloud. Additionally, the pair has been forming lower highs since it tested a resistance level of 0.8834 on Wednesday, June 21st.
The pivot level of 0.8765 could be interpreted as a neckline, which also falls on the lower band of the Ichimoku cloud. The cloud is thin, and the future cloud has tilted slightly downward. A break below the cloud could indicate further drops towards the next pivot level of 0.8722. Short-term support pays on the 38% Fibonacci level at 0.8680.
EUR GBP Short Term Trading Analysis – 4 Hour Timeframe
Daily Timeframe: After reaching our previous bullish profit target, the EUR GBP pair now appears to be in the process of forming a Double Top chart pattern at the resistance of 0.8834, with neckline falling on 0.8722.
EUR GBP Short Term Trading Analysis – Daily Timeframe
Also, taking a closer look at the pair’s behavior in the past six months, it appears that the EUR/GBP pair has actually been ranging between 0.8834 and around 0.8433.
2- Fundamental Points
The second point of the IDDA suggests looking at the economic and political developments that could impact the currency pair.
U.K. Side: Despite Brexit talks and other political tensions in the U.K., the Bank of England has taken a rather hawkish bias on an interest rate hike. In their June Policy Decision, the BOE maintained its current monetary policy. However, Ian McCafferty and Michael Saunders joined Kristin Forbes in voting for a hike. This was an unexpectedly hawkish move since the consensus was that only Forbes will continue voting for a hike.
BOE Governor Carney is dovish in that he personally doesn’t want to support hikes just yet. However, he is still a hawk in that the next move he’s contemplating is to hike.
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EUR Side: In contrast to the Bank of England, the ECB has been more on the dovish side, meaning they are less confident in their respective economy. While similar to the BOE, in its official press statement for the June 8 monetary policy decision, the ECB maintained its current monetary policy, it stated that it expects interest rates “to remain at their present levels for an extended period of time.”
ECB President, Mario Draghi very clearly pointed out that the ECB still has an easing bias when it comes to its QE program and that the ECB is ready to switch back to a rate cut bias.
Fundamental Thoughts: A dovish ECB could push the EUR lower. A hawkish BOE could push GBP higher. The combo could push the EUR/GBP lower.
Coming up: There is going to be an ECB Forum in Sintra With Central bank’s head Draghi, BOE’s Carney, BOJ’s Kuroda which could create some noise for their respective currency in the markets.
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3- Market Sentiment
Market sentiment analysis is the 3rd point of the IDDA, taking a contrarian view to crowd sentiment. Retail trader data on late Friday showed 32.2% of traders were net-long EURGBP. In fact, traders have remained net-short since May 16 when EURGBP traded near 0.84279. The number of traders net-long is 5.5% higher from last week.
The fact that traders are less net-short than Thursday and compared with the previous week indicates EURGBP price trend may soon reverse lower despite the fact traders remain net-short.
EUR GBP Short Term Trading Analysis – Strategy Development
As 4th point of the IDDA, you must calculate your risk tolerance before deciding on which trading strategy is suitable for your portfolio. We normally do not recommend trading without three or more confirmations of a specific direction from technical, fundamental and market sentiment points of view.
I have already shared the short term trading strategy with our group members.
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Disclaimer: Forex is one of the HIGHEST risk investing instruments there is. If you don’t have sufficient risk tolerance to trade forex, you can try investing other online securities.
Combining all points of the IDDA, here are Invest Diva’s calculations for important approximate levels to keep an eye on:
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