31 Mar Follow Up Q1 Full EUR GBP Analysis for Q2
Since the original EUR:GBP long term analysis detailed in this post it was always my intention to follow it up at the end of the first Quarter in view of a potential long term swing short that could yield a significant devaluation of the Euro against the British Pound.
Unfortunately, as is often the case with trading, EUR:GBP continues to hold it’s cards close to it’s chest as price resides at the same levels seen 3 Months ago!
So, whilst I’m now short, this analysis still doesn’t yield conclusive answers, but if you are already positioned in EUR:GBP or plan to be, it gives us a few things to watch.
Starting with Quarterly chart, I wanted to see a big red candle hanging from the Quarterly 20 MA, but all we’ve ended up with is a doji although it has closed below the 20 MA and price has fallen out of the long term Triangle not that this alone is conclusive evidence of it’s next likely direction:
Moving to the Monthly chart, price appears to have fallen from a long term bear flag whilst MACD confirms the downwards bias, I think as with the Quarterly chart we do have a bearish look about this pair and an inside bar to boot:
The Weekly chart also exudes bearishness as again we have another example of the 20 MA rejecting price at the upper end of the last 3 Months trading range, and it’s this chart that really inspired my short entry. You’d naturally expect another visit to the support line at 0.8176, but again, nothing is certain here as MACD has crossed up with a marginally higher low:
The Daily chart really throws a spanner in the Works and this is the one that concerns me most. Price is below all of the major MA’s suggesting the trend does indeed remain down and an attempt to break out of a falling trend line was soon reversed.
But, my big problem with this chart is that Positive MACD Divergence highlighted in red. We see positive MACD divergence all the time and it doesn’t necessarily mean a low is in place, but when it’s as crisp as this, well defined and precedes a rally as it did here, it often means business and can often signify that a long term low is in place on a candle closing basis. I believe this is a significant signal and I have a lot of respect for it’s capabilities, therefore, my down side target for the open swing short is for now defined between the current price level and that swing low. Only a daily close below that low will open up possibilities for a more sustained sell off and if that occurs I’d add to my open position, but my trading experience to date is telling me to be very cautious on the short side for as long as that MACD divergence remains in place and price remains above that swing low. If that low holds in the form of a double bottom, I’d definitely consider reversing long.
Here’s the chart:
A quick look at the 4 hourly and 1 hourly charts show potential bullish falling wedges (not bullish until a proven break out occurs). MACD isn’t giving any obvious clues on the hourly, but the 4 hourly is heading the right direction to compliment my short. All in all, we’ve been range bound for so long I don’t think there’s a lot of information to yield from these 2 charts unless solid up side break-outs or downs side break downs occur, but here they are for your reference.
4 hourly EUR:GBP
In conclusion I think I’m on the right side of the trade in the short term, but I’m not confident hence running stops at break-even quite early on in the trade. In the longer term, the last 3 Months of range bound activity is almost certainly creating a future congestion zone (read as resistance/support), but only the market can tell us whether that will be from above or below.