14 Oct EUR GBP Analysis For October 2012
On following the EUR:GBP Daily chart for some time, the price action over the last couple of Weeks is suggestive of a weakening retrace within an ongoing down trend. The Daily chart showing ideal conditions ahead of a swing short, however, other time frames are not as clear cut. Any decision to enter a swing trade on this pair will probably have to be made through determining the key levels on the particular time frame you wish to trade.
First of all the Daily chart is clear cut. Price has retraced to form what could be a lower high, whilst also up tight against the falling channel that’s been in place for 13+ Months. Added to that is the consolidation around the green 200 MA which is a common retracement point within an ongoing trend. With MACD threatening to print a lower high and produce negative divergence (not yet confirmed), this looks as good a swing short candidate as any:
If only things were that straight forward!
The Weekly chart shows possible upside risk in the form of a potential rally to test resistance at 0.8176 which is around 120 pips higher than the current price. Furthermore, MACD is pointing up and it’s ascent appears to be accelerating.
The Monthly chart doesn’t give a great deal of information. The 100 MA provided support, and there’s no real way of telling if the current retrace is nearing completion or whether we could see a prolonged retrace similar to the one highlighted nearer the top of the chart. However, major Monthly support at 0.7685 is highly likely to get tested at some time in the future. The retrace we are seeing at present is most likely a knee-jerk reaction from the 61.8% fib retrace:
If we drill right down to the 4 Hourly time frame for a closer inspection we can see that price failed to stay within it’s channel, dipping slightly only to find support from the green 200 MA. We also have a short term pattern that can be interpreted as either a bullish cup and handle, or likewise, a series of lower highs caused by the gradual evaporation of buyers:
Despite the evidence for and against a swing short here, I remain quite tempted to enter short using the Daily time frame as the main template to monitor the trade. The Resistance shown on the Weekly chart needs to be noted as possible upside risk i.e a stop loss in excess of 120 pips, whilst the untested support on the Monthly chart makes for an ideal downside target of approximately 400 pips.
I’m sure everyone reading will have their own way of assessing the risk on such a trade set-up, but for me, I remain interested and will post details of any new positions taken in the comments section beneath this post.