FxWirePro: Spot out EUR/GBP’s oversold pressures and bid longs via call spread

Prices are consolidating around the midpoint of the current 0.8730–0.9025 range. Intra-day studies remain a little “oversold”, warning the downside is limited in the near term. We are watching the cross in conjunction with the key levels in the legs highlighted above.

Medium term, a range between 0.8250 and 0.9032 is expected.

Long term, we still risk a re-test and break of 0.9415 in the first instance and the 2008 highs at 0.9802. The decline through 0.9300 and 0.8800 decreased that risk, leaving us in the middle of the medium-term range. A break of 0.8250 reverses the risk completely.

There is little to report from the UK this week except for estimated quarterly GDP and Autumn forecast statement. Activity data has been mixed this week (strong IP, firmer than expected pay growth, but certain indicators suggesting weak retail sales growth).

We continue to reckon that this is not a particularly bullish backdrop for GBP, irrespective of the recent increase in interest rates and maintain the bearish view although admittedly GBP remains subject to the data flow in the coming weeks.

In addition, the long EUR exposure from this trade serves as a hedge to our short EUR positions elsewhere in the portfolio (via CHF).

Long a 2m 0.8825 - 0.9150 EURGBP call spread, the positions can be executed at net debit.

This debit call option spread strategy is employed when the options trader reckons that the price of the underlying spot fx would go up moderately in the near term.

Currency Strength Index: FxWirePro's hourly EUR spot index is displaying shy above -151 levels (highly bearish), while hourly GBP spot index was inching higher towards 92 (bullish) while articulating (at 11:47 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

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