FxWirePro: EUR/GBP bears breach trendline support, major trend stuck in range – Trade boundary strikes and uphold directional hedge

EURGBP bears extend minor downtrend upon breach below the uptrend line, although bulls attempt to bounce in the previous trading session, the renewed weakness is observed for today (refer 4H chart). Shooting star and hanging man have occurred at the peaks of rallies at 0.9029 and 0.9035 levels respectively to signal weakness.

While both leading and lagging indicators show downward convergence to signal weakness.

Consequently, the minor trend is likely to head towards further slumps as both momentum indicators are in tandem with the prevailing price dips. Both RSI and stochastic curves show bearish convergence.

Daily technical signals continue to suggest a significant pullback is warranted, but price action is not confirming this at the moment. Intra-day support lies at 0.8952, while daily support sits below around 0.8933.

On a broader perspective, the intermediate trend hits 5 and a half month highs, the prices are in a contracting range between 0.8250 key medium-term support and 0.9300-0.9415. The underlying studies are biased for an eventual break down through the support region, but a move through 0.9100 would do damage to that view, with a break of 0.9415 and 0.9710 suggesting a re-test of the 2008 0.9802 highs.

Trade tips: On trading perspective, at spot reference: 0.8959 levels, contemplating above explained technical rationale, it is advisable to trade boundary strikes option strategy using upper strikes at 0.8968 levels and the lower strikes at 0.8933 levels, the strategy is likely to fetch leveraged yields as long as underlying spot FX keeps dipping towards this strikes on expiry duration.

Alternatively, ahead of ECB monetary policy, on hedging grounds, we advocated initiating directional hedges that comprised of shorts in EURGBP futures contracts of Aug’19 delivery and simultaneously, longs in futures of Sept’19 delivery for the major uptrend.