Very interesting question I received in comments to yesterday’s post, New China scare, and it had nothing to do with China or USD. What was I up to in relation to EUR-GBP? Evidently I’m not the only person preoccupied with Euro-Pound recent moves, at least couple of readers keep me company. Pound is causing some controversy. No, not the GBP, but rather the way it reacted to recent recession news. Some question validity of GDP data, some claim it is inaccurate. Perhaps it shouldn’t have been published at all , given the fact it is incomplete and subject to revision? Today retail sales numbers were announced and they are the highest in 2 years. What’s going on? Analysts from major financial institutions are broadly divided on future course of GBP. Some call for parity with Euro, while others see 0.8500 level. At the moment market is very conveniently right in the middle of this wide range and stalling, as if waiting for new data to push it either way.

So, what is the next move? Well, as far as I’m concerned it depends almost entirely on time frame of interest. Most traders are partial to charts that fit their strategy and time constrains. Those who sit in front of terminal all day long probably don’t use weekly charts for entry points. For my latest trade I used 4H chart, with general direction dictated by daily graph. Price moved largely as expected, falling to 0.9100 level, but failed move any more yesterday. With my objective of 0.9080-0.9100, I got out at 0.9108 for 101 pips gain, good score for this cross in one day. Since I closed it, it wouldn’t be prudent of me to use 4H chart for next trade. At this point risks would be much bigger than possible returns, given proximity of major support at 0.8990 or so.


One could try use smaller magnitude chart, hourly, for example. Opportunities are present there, much smaller, but so are the risks. I took one trade today using this chart. Once congestion band was established, price broke through 0.9090 and moved to objective for 21 pips profit. One could try to trade it to the downside in these small steps and comparable stops, but I don’t think that potential rewards would justify time commitment here. That’s just my opinion. It is possible to squeeze another small trade, or 2, if the price continues lower.

Daily chart, source of my original analysis of EUR-GBP on Sunday, is probably not usable at the moment. Once again it is the risk/reward scenario. Unless one is confident to hold it for really long time, support and bounce at 0.8990 is very real. Ideal situation for trading this time frame would be to witness reaction at the support, followed few days later by clean break. That’s when I’d like to get in for a 200 pips run in the first leg, with more determined later.

So, to get back to the original question of  “What is the next move?”, it can only be answered in the context of what one is looking at. For me correct move is to wait, not taking any more trades today, probably nothing till next European open in this pair. By then market might provide some additional important clues. For one, it is not a forgone conclusion that GBP has turned the corner longer term. Market participant are still debating the issue.

This might help to convince me about larger picture. Move above 151.25 in GBP-JPY would be healthy for the Pound, even if it is difficult to get through this huge bearish candle from Friday. It already happened in GBP-CAD, though, another cross I’m watching with interest and GBP-CHF has almost reached Friday’s high, too. The rest of this week should decide how real strength in Pound is. I see busy times ahead.

Mike K.