FxWirePro: EUR/GBP uptrend unlikely to persist as technical indicators bearish bias – Uphold directional hedges ahead of ECB

Although EURGBP bears extend minor downtrend, but we could see renewed strength uptrend line at 0.8955 level for today. But any breach below these levels (i.e. uptrend line, refer 4H chart) could bring back downswings. 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.

The prices continue their grind higher short-term trend basis, with some hefty resistance levels of 0.9097 on intermediate trend which is not far away now (refer weekly plotting). 

While channel resistance lies around 0.9010 (refer 4H chart), while medium-term range resistance is above at around 0.9098 areas.

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 0.8990-80, while daily support sits below around 0.8900. A clear break and close above 0.9115 take us into a new bull dynamic.

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: 0.8978 levels, contemplating above-explained technical rationale, it is advisable to trade tunnel spread option strategy using upper strikes at 0.8983 levels and the lower strikes at 0.8955 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 July’19 delivery and simultaneously, longs in futures of Aug’19 delivery for the major uptrend. 

The strategy has acted as per whims and fancies of our predictions, we now wish to uphold long leg by rolling over to Aug’19 delivery with a view of arresting further upside risks.