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Today’s Trading Edge: EUR/GBP – Could it be One Month More Till ABS Kills the Euro?

Posted by Edward Moya on Aug 7, 2014 10:21:00 AM

WWM EURGBP AUG 7 2014

The ECB press conference did not provide any major price moves that threatened either the 1.3400 or 1.3300 technical levels.  As expected, no changes to monetary policy were announced and no definitive queues on how big and when ABS may occur.  Rates are expected to stay extended for quite some time and the Bank did make it a point to let us know that they are increasing their preparations for implementing ABS. 

The intra-day charts will highlight a slight bounce in the euro once Draghi said that he will stay the course with their present policies.  Those gains were capped by 1.3400 sellers and the increased expectations that the Bank is getting ready to act.  Russia remains a risk and deflation was not heavily addressed.  The ECB is also pleased with the recent weakness in the euro and no doubt would welcome some more, possibly to 1.30 for the euro/dollar.   

Since forming a double-top pattern last August around the .8800 area, EUR/GBP remains in a strong downtrend that may ultimately target a decline towards .7500.  The outlook for the British economy has been fairly bright over the past year as employment growth has accelerated to 3.4% growth yoy in the first quarter.  The concerns however are growing that   wage growth may become an issue and force the central bank to become slightly dovish and that could derail many rate hike forecasts.  Despite a potentially more dovish Bank of England, the downside risk is greater for the euro with the likelihood of ABS starting sooner, especially if any additional headwinds occur to the European economy.  The next ECB meeting is September 4th.    

Currently on the EUR/GBP daily chart the resumption of the downward trend appears to be back in play, but we may see momentum stall shortly and have some difficulty breaking lower until next week.  We will look for a slight consolidation to occur perhaps throughout the remainder of the U.S. session.  If price does stabilize and rally towards the .8012 level, a bearish Gartley pattern may form.  The bear market move is not over, but we will except the ride down to become choppier than it has been. 

The trade: Sell EUR/GBP at .7930, with a stop loss at .7980 and a take profit at .7805.  The Risk/Reward Ratio is slightly better than 1: 2

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading

 

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