FxWirePro: EUR/GBP bulls bamboozled by bearish engulfing in minor trend, major trend back in range on shooting star

EURGBP minor trend has been grinding lower ever since the formation of bearish engulfing pattern at 0.8841 and 0.8719 levels that signals weakness at the peaks of interim rallies, consequently, bears were back in action to plummet the prices below DMAs with bearish MACD crossover. 

Prices have developed into a wide holding pattern between 0.8680 support and 0.8820 resistance. Price action is volatile between these levels on headlines. While prices consolidate, the underlying outlook remains constructive for the pound for further gains towards 0.8475 and 0.8250 key longer-term supports.

However, a rally back through 0.8820-0.8890 would warn that prices could be returning to the previous upper range with a potential retest of the 0.9325 highs.

While the momentum and trend oscillators indicate selling momentum and 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. 

On a broader perspectives, the pair is back in range upon the formation of 0.9032 level (refer monthly chart). The prices are in a contracting range between 0.8250 and 0.9300-0.9415. Our analysis are biased for an eventual break lower. A rally through 0.9415 and 0.9710 would negate that and suggest a re-test of the 2008 highs at 0.9802.

Trade tips: On trading perspective, at spot reference: 0.8722 levels, contemplating above explained technical rationale, it is advisable to trade tunnel spread option strategy using upper strikes at 0.8750 levels and the lower strikes at 0.8680 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, longs in futures of December’19 delivery for the major uptrend, we wish to maintain these positions.

We wish to maintain the same strategy by rolling over short-leg of October delivery, while the long-leg remains intact.