Trade view / 08 January 2013 at 13:35 GMT

Selling EURGBP after 1-week highs failed

John J Hardy John J Hardy
Head of FX Strategy / Saxo Bank
Denmark

UPDATE: Jan. 9 - the trade went into small profit and then EURGBP rallied sharply today from 0.8132 to 0.8161. I prefer taking off for small loss ahead of ECB at top of entry range (currently trading 0.8150) rather than waiting around for the stop at this point...GBP looking very weak elsewhere.

Trade: Selling EURGBP around 0.8140-50

Stop: 0.8171 bid

Targets: 0.8085 and 0.8055

  • The Euro may be on the defensive this quarter after outperformance in Q4 of last year as its underweighting in central bank reserves portfolios has been sharply reduced going into year end. Also, we have the uncertainty of the upcoming Italian elections later this quarter and ongoing social tension at the EU periphery in general could see renewed worries about the future of the EMU.
  • With Italy and Spain having particularly heavy debt issuance needs this quarter (debt auctions up on Thursday for Spain and Friday for Italy), we may need new signals of further ECB easing if we're to see peripheral sovereigns able to continue to fund themselves. Any weakness at these auctions could see an eventual ECB response.
  • Sterling may be in a bit of a quiet period in terms of monetary policy as the BoE leadership is set to change in June. This could prove GBP supportive if the impression is that no further QE will be forthcoming for now.
  • There is widespread complacency and GBP tends to outperform slightly in the event we see consolidation/risk aversion in the days ahead.
  • Technically, the pair attempted a new one-week high today around the 50% retracement area of the previous sell-off (0.8155 area). The inability of the pair to hold these levels suggests higher risk that sellers may come in again in a follow up move of the large sell-off from the previous 0.8200+ highs..

Trade management: If the pair trades below 0.8125, the stop may be lowered 15 ticks, if the pair trades below 0.8100, the stop may be lowered to break even or slightly better. Half of profits may be taken at the first target and the other half at the second target if the trade progresses.

Risk: Besides the normal volatility risk that could see the position stopped out, the ECB is scheduled to meet on Thursday, which could see the Euro breaking either way, depending on the ECB's decision on rates and what Draghi may have to say at the press conference.

Daily Chart:

eurgbp_s

Weekly Chart:

eurgbp_l

 

 Disclaimer:
Non-independent investment research
This investment research has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Saxo Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. 
» Read more

Disclaimer

The Saxo Bank Group provides an execution-only service and all information provided on Tradingfloor.com is solely for general information. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. Saxo Bank Group will not be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available as part of the Tradingfloor.com or as a result of the use of the Tradingfloor.com. Any information which could be construed as investment research has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such should be considered as a marketing communication. Furthermore it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Please read our disclaimers:
- Notification on Non-Independent Investment Research
- Full disclaimer

Show latest activity
Dismiss
Sorry, there was a problem communicating with the TradingFloor.com servers. We are working hard to solve this. Please try again later.
Oops! There was a problem communicating with the OpenAPI Portfolio service.
Oops! There was a problem communicating with the OpenAPI History service.
Oops! There was a problem communicating with the OpenAPI Reference service.
Oops! There was a problem communicating with the OpenAPI Root service.
Oops! There was a problem communicating with the OpenAPI Trading service.
Sorry, there was a problem communicating with the Financial Calender servers. We are working hard to solve this. Please try again later.
Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail