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FxWirePro: EUR/GBP Shooting star pulls back major trend in range, maintain directional hedges as bears on verge of dragging 4-months lows

EURGBPminor trend has been grinding lower ever since the formation of long-legged doji at 0.9284 level that signals weakness at the peaks, consequently, bears were back in action to plummet the prices and restrained constantly below DMAs with bearish crossover. The momentum and trend oscillators indicate selling momentum & the downtrend continuation respectively.

The prices continue to extend lower, now trying to push through the bottom of the bear channel. Intra-day resistance lies at 0.8845/50 and then 0.8890/95. 

A move back through there would erode the current downside potential, suggesting a broader correction back towards 0.8950-0.9000 channel resistance. Until then, the current trend remain intact with 0.8725 the next main support area we are monitoring.

Momentum indicators are in tandem with the prevailing price dips, RSI and stochastic curves show bearish convergence. While bearish MACD crossover indicates the downtrend continuation.

On a broader perspective, shooting star pattern popped up at 0.9032 levels, and bears resume to pull back the prices below 0.8825 areas (refer monthly chart). The major trend now is on the verge of 4-months lows.

Consequently, the prices are back in a contracting range between 0.8250 key medium-term support and 0.9300-0.9415. The underlying studies are biased for an eventual break down through the support region, but a move through 0.9100 would do damage to that view, with a break of 0.9415 and 0.9710 suggesting a re-test of the 2008 0.9802 highs.

Trade tips: On trading perspective, at spot reference: 0.8804 levels, contemplating above explained technical rationale, it is advisable to trade tunnel spread option strategy using upper strikes at 0.8825 levels and the lower strikes at 0.8752 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps dipping towards lower strikes but remains above that level on the expiration.

Alternatively, on hedging grounds we advocated initiating directional hedges that comprised of shorts in EURGBP futures contracts of September’19 delivery and simultaneously, the longs in futures of December’19 delivery for the major uptrend, we wish to maintain these positions.

By Niranjan Patil
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