FxWirePro: EUR/GBP Shooting Star & Hammer Ensure Range-Bounded Trend – Trading & Hedging Setup

EURGBP minor trend has been rising higher upon hammer formation at 0.8428 levels.

While the major trend grinding lower ever since the formations of shooting star patterns at 0.9032 on monthly and 0.8580 levels on daily plotting that signalled weakness at the peaks of rallies, consequently, bears were back in action to plummet the prices below DMAs with bearish MACD crossovers. 

On the contrary, hammer takes-off rallies above 7 & 21-DMAs, more rallies are on the cards as both leading & lagging oscillators in line with the current uptrend.

After holding the upper 0.8400 - 0.8350 support region, prices are testing resistance up to 0.8500 region. A move through here would support our wave structures that suggest a move back to and potentially through 0.8600, towards 0.8700/0.8800 can be seen.

However, that upper area should define the top of a medium-term range. In the micro term a drift back through 0.8440 would disappoint, while a clear breakdown through 0.8350 would start to negate the more bullish outlook and suggest a re-test of the key medium-term 0.8250 supports.

On a broader perspective, shooting star at peaks and hammer at bottom of range ensure prolonged range-bounded trend. Now, hammer occurs at 0.8469 levels that cushions the major downtrend.

However, a break below 0.8250 is needed to add conviction that a broader top has developed for an eventual move back towards 0.8000-0.7800 next support. First support below 0.8250 is around 0.8160/40, while medium-term resistance lies in the 0.8700-0.8800 region.

Trade tips: On trading perspective, at spot reference: 0.8468 levels, contemplating above explained technical rationale, it is advisable to trade tunnel spread option strategy using upper strikes at 0.8494 and the lower strikes at 0.8425 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps dipping towards lower strikes but remains above that level on the expiration.

Alternatively, on hedging grounds we advocated initiating directional hedges that comprised of shorts in EURGBP futures contracts of February’2020 delivery and simultaneously, longs in futures of April’2020 delivery, shorts have expired now as per desired moves. We wish to maintain long positions.