Countertrend Forex Setup on EUR/GBP – Aug 18, 2014

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Countertrend Forex Setup on EUR/GBP - Aug 18, 2014

Countertrend Forex Setup on EUR/GBP - Aug 18, 2014
EURGBP has been moving inside a rising forex setup channel for most of the month, as price made higher lows and higher highs. At the moment, the pair is testing the top of the rising channel, which lines up with the .8000 major psychological barrier.

At the same time, stochastic is moving lower, indicating a pickup in selling pressure and a potential short forex setup. This could lead to a selloff until the channel support near the .7950 minor psychological level.

Shorting at .8000 with a tight stop above the latest highs and a target of .7950 could yield as much as a 2:1 return on risk. Trailing the stop and aiming for a channel forex setup breakdown could improve the potential return.

Forex Setup Forecast

The euro zone is set to print its trade balance and possibly report a smaller surplus, indicating that the region is already seeing signs of weakness in trade even before the Russian food import sanctions take effect. Meanwhile, data from the UK has shown a retreat in house prices, as the Rightmove HPI marked a 2.9% decline for August.

Fundamentally speaking, the euro is in a weaker spot compared to the pound, paving the way for a possible forex setup selloff on EURGBP. After all, the ECB has already cut several interest rates and has shown interest in implementing asset-backed securities later on, on top of the targeted long-term refinancing operations later this year. As for the BOE, they appear to be less hawkish for now, as house price inflation is slowing down and the lack of wage growth could weigh on consumer spending later on.

Event risks for this forex setup this week include the UK CPI and retail sales, along with the release of the minutes of the latest BOE monetary policy meeting. If these come in weak or dovish, an upside breakout might be a better forex setup.

To contact the reporter of the story: Samuel Rae at samuel@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.