FxWirePro: Long-legged doji and potential shooting star likely to keep EUR/GBP’s range bounded trend intact – Trading and hedging Setup

In this write-up, we emphasize both the daily and monthly technical analysis of EURGBP that signals continue to suggest a significant pullback is warranted, but price action is not confirming this at the moment. Short-term support lies at 0.9097 levels and resistance at 0.9161 levels.

The display of long-legged doji at 0.9284 levels hampers EURGBP uptrend. Consequently, bears resume minor downtrend upon breach below 7-DMAs (refer daily chart). 

Although bulls attempt to bounce from the last two-three days, restrained below 7-DMAs.

The renewed weakness is observed for today as both the leading and lagging indicators show downward convergence along with the prevailing price dips to signal weakness.

Momentum indicators are in tandem with the prevailing price dips, RSI and stochastic curves show bearish convergence.

On a broader perspective, the intermediate trend hits multi-months’ highs (near 2-years’ 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: 0.9135 levels, contemplating above explained technical rationale, it is advisable to trade tunnel spread option strategy using upper strikes at 0.9161 levels and the lower strikes at 0.9097 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 eurozone PMIs, on hedging grounds, we advocated initiating directional hedges that comprised of shorts in EURGBP futures contracts of September’19 delivery and simultaneously, longs in futures of December’19 delivery for the major uptrend.