Which Way Next For EuroSterling?

Last time I featured the EURGBP chart (Long Trade In EuroSterling) I was looking to go long at the 21-day moving average support area of £0.9170.

The risk was that the fall at that time was so emphatic that the price simply ignored the 21-day moving average in the short term and kept on falling. And that’s what happened, with the price continuing to slide to the lower Bollinger band, dropping briefly below £0.90.

But Friday’s collapse in Sterling has brought this currency pair back to a point where it’s worth watching for a trade in either direction. The key, once again, is the 21-day moving average.

Friday’s move propelled the exchange rate 200 pips higher, from the lower Bollinger band to close just above the 21-day moving average at £0.9193. So far today there’s been some cautious support for Sterling taking the EURGBP lower. This is a reasonable reaction after Friday’s move; until 9.30 last Friday the market had been resolutely bullish on Sterling. The question now is whether that trend will hold or whether Friday’s number was bad enough to turn the move on its head.

There are firm market views in both directions, with a lot of the big boys still backing a move higher; some even expect a move to parity with the Euro. Technical indicators provide ammunition for both camps with the Parabolic SAR and MACD reflecting negative sentiment, though the MACD is becoming less so. The daily RSI at 53 is positive, but not emphatic, and the 21-day MAV really is pretty flat.

The downside to an ‘eachway trade’ is that there’s a greater probability of being wrong, so I want more information, or better odds, before trading.

If the price sells off this afternoon I’ll look for a test of support at £0.9105, the 50% retracement of Friday’s rally; if that holds I’ll look to go long and see if there’s enough momentum initially to regain the 21-day MAV. But that retracement only works for me today; a daily close below the 21-day MAV will have me looking to test the short side down to Friday’s open at £0.9045 and then the big figure £0.90.

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