Forex Trade Idea: EUR/GBP Moving Average Test – July 21, 2014

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Forex Trade Idea: EUR/GBP Moving Average Test - July 21, 2014

Forex Trade Idea: EUR/GBP Moving Average Test - July 21, 2014EUR/GBP is still on a strong downtrend and it appears that the 100 simple moving average is acting as dynamic resistance for the pair in its small pullbacks. The pair just bounced off the resistance area on the .8000 major psychological level on the latest retracement.

This time, EUR/GBP could pull back to the .7950 minor psychological level and find resistance there. In that case, the selloff could resume until the previous lows at .7900 or lead the pair to make new lows at the .7800 levels.

Stochastic is moving down, indicating that selling pressure is present. Shorting at .7950 with a stop above the 200 SMA or the .8000 mark could yield a 2:1 return on risk with a target at .7850.

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Forex Trade Idea Scenarios

For this week, the major event risks for the euro and the pound are the following: German manufacturing and services PMI, French manufacturing and services PMI, UK retail sales and preliminary GDP, and BOE meeting minutes.

Euro zone PMIs could see another round of weak data, as the figures have reported either a weaker expansion or a contraction in the past few months. This could lead to more easing expectations as lower manufacturing and services performance could weigh on GDP.

As for the UK, a slowdown in both retail sales and GDP could be bearish for the pound. In that case, a larger correction might take place for EUR/GBP and other pound pairs, as it appears that the downtrend is already exhausted.

However, the BOE meeting minutes could be crucial in setting the tone for longer-term pound trading. This would indicate whether policymakers still support an earlier tightening from the BOE, possibly at the end of the year as they mentioned in their previous monetary policy decision. Hawkish remarks from the BOE minutes could lend more support to the pound and boost it higher against its counterparts.

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