Given limited event risk out of both the Euro Zone and UK, we feel that current market conditions support further EURGBP rangebound price action. A multi-month rising trendline offers clear-cut support for the pair, and any hourly close below this mark will nullify our EURGBP-long range trade. Yet traders should nonetheless watch for Thursday morning’s critical Bank of England and European Central Bank interest rate decisions. We would prefer to be out of this particular trade ahead of such events, as it is difficult to predict what will happen to the EUR and the GBP on the key fundamental news.
| Why Would EUR/GBP Stay in a Range? | ||||||
| · Levels to Watch: | ||||||
| -Range Top: 0.7616 (All-time high) | ||||||
| -Range Bottom: 0.7391 (Monthly low) | ||||||
| • The EURGBP has come upon a 3-month rising trendline, and we believe that overall bullish momentum will likely keep the pair above nearby support. | ||||||
| • Economic calendars out of both the Euro Zone and the UK support range trade opportunities until Thursday morning’s key Bank of England and European Central Bank rate decisions. | ||||||
| Suggested Strategies | ||||||
| • Long: We will look to go long the EURGBP on a continued hold of intraday support at 0.7445, with a buy limit order just slightly below current market price at 0.7460. | ||||||
| • Stop: We will close our position on an hourly bar close below the 0.7445 mark, while intraday stops shall be set at 0.7415. If our first price target is hit, take profit on half of the position and move stops to breakeven on the remaining position. | ||||||
| • Target: Our first profit target will be set at intraday resistance at 0.7520. Full profit target will be set at 0.7547. | ||||||
Trading Tip – Given limited event risk out of both the Euro Zone and UK, we feel that current market conditions support further EURGBP rangebound price action. A multi-month rising trendline offers clear-cut support for the pair, and any hourly close below this mark will nullify our EURGBP-long range trade. Yet traders should nonetheless watch for Thursday morning’s critical Bank of England and European Central Bank interest rate decisions. We would prefer to be out of this particular trade ahead of such events, as it is difficult to predict what will happen to the EUR and the GBP on the key fundamental news.
Event Risk Euro Zone and UK
Euro Zone – Euro-zone economic event risk will mainly concentrate on the European Central Bank’s rate decision on February 7 as the economy faces increased inflationary pressures along with a slowing economy. The ECB is expected to leave rates unchanged amid a pessimistic outlook on the economy as they try to contain the belligerent rise in inflation. As bearish sentiment take hold of the Euro-Zone, the OECD Leading Index along with the Industrial Production release will not be able to provide any sort of comfort for the crippling economy as the overall sentiment continues to be hampered by lowered growth. We expect it to be increasingly difficult for the euro to stay up amid increasing frustration within the economy, and will keep a watchful eye on until the Industrial Production release due out on February 13.
UK – UK economic event risk will primarily focus on the Bank of England’s rate decision tomorrow, along with the Industrial and Manufacturing Production releases earlier on in the day. As the UK continues to struggle with the aftermath of the credit crunch, the central bank is expected to lower rates as a stimulus to the slowing economy, while Industrial and Manufacturing Production is expected to rise as unemployment hit a record low.
| Data for February 6 – February 13 | Data for February 6 – February 13 | |||
| Date | Euro Zone Economic Data | Date | UK Economic Data | |
| 7-Feb | ECB Rate Decision | 7-Feb | BOE Rate Decision | |
| 8-Feb | OECD Leading Index (DEC) | 7-Feb | Industrial Production (DEC) | |
| 13-Feb | Euro-Zone Industrial Production (DEC) | 7-Feb | Manufacturing Production (DEC) | |
Written By John Kicklighter and David Rodriguez, Currency Analysts for DailyFX.com
To contact David or John about this or other articles they have authored, email them at [email protected] or [email protected]