EUR/GBP Triple Top Offers Medium Term Short Scalp Targets

A daily chart shows the EUR/GBP pair holding below the 50% Fibonacci extension taken from the May 5th and July 1st crests at 0.8867. The pair has failed three attempts at a test of the 0.89-figure over the past two months and looks to form a triple top before heading lower. With concerns turning back onto the sovereign debt crisis in Europe, we maintain our bias for longer-term weakness in the single currency, with the pound likely to advance against the euro. Daily RSI has been unable to breach the 60-mark since early July and subsequently the pair may move lower for another tag of the 61.8% Fibonacci extension at 0.8815. Accordingly, our bias on this particular scalp will be weighted to the downside noting the possibility for another topside test of the 0.8880 level.

A 30min chart shows the pair trading within an encompassing ascending channel dating back to August 18th. A Fibonacci extension taken from the August 10th and 29th crests provides downside levels with initial profit targets held at 0.8825 backed by the 38.2% extension at 0.8790 and the 50% extension at 0.8765. Topside interim resistance stands at 0.8860 backed by the 0.8880.

Key Thresholds

Note that a 2-hour average true range yields just 16pips. For the sake of keeping in line with proper risk/reward ratios, a look further out at a 4-hour ATR which yields a read of 21.79. Accordingly profit targets on said scalp should be between 16-21 pips depending on entry and may take longer to obtain. We reckon a break above 0.8880 negates the bias with such a scenario eyeing topside targets at the 0.89-figure, 0.8920 and 0.8940.

Note the scalp will not be active until a confirmed break below the 0.8825 or a rebound off 0.8860.Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Reference Values

Related Economic Data Releases

Event risk for the scalp starts tonight with the GfK consumer confidence survey out of the UK. Consensus estimates expect confidence to deteriorate further in August with a print of -33, down from a previous read of -30. Overnight German retail sales and unemployment data takes center stage with sales expected to slide 1.5% m/m and 0.8% y/y. The German economy is expected to have created 10K jobs this month with the unemployment rate seen holding steady at 7.0%. Euro zone unemployment and CPI data follows soon after with estimates calling for the unemployment rate to hold at 9.9% with inflation estimates seen unchanged at 2.5%. Disappointing data out of the UK risks upsetting our bias as weakness in the pound would see the pair higher. Likewise, weaker Euro zone data is likely to weigh on the euro, supporting our setup for further weakness in the EUR/GBP pair.

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Written by Michael Boutros, Currency Analyst for DailyFX.com

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