Britain’s economy is looking better while the rest of Europe is not. Early this morning, the British pound remained fairly bid against most of its major trading partners, but failed to breakout to new highs to the U.S. dollar after U.K. Manufacturing PMI climbed to a 10-month high. The reaction for sterling did provide a stronger move against the euro as concerns stemmed from poor readings from France and Spain.
Since the beginning of August, EUR/GBP has formed a bearish channel(highlighted in red) which currently has price closely approaching the lower boundaries near the .8200 handle. With price trending below the 200-, 100-, and 50-day Simple Moving Averages, downward momentum may make one last move lower before we see some exhaustion in this downward plunge.
It is around the .8180 region that we may see a bullish butterfly emerge and after we are done riding the momentum down, we may look to trade a potential rebound as well.
The trade: Sell EUR/GBP at .8275 with a stop loss at .8305 and a take profit at .8215. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading