December 10, 2009

EUR/GBP Analysis - Watch For A Possible Breakout

If you look at the 4 hour and daily charts of the EUR/GBP currency pair, you will see the price has been stuck in a very narrow trading range for pretty much the whole of this month. This is significant because usually after a long period of consolidation, you will often get a big breakout. It's almost like a volcano - it stays dormant for ages and then suddenly erupts.

This is what I think is going to happen to the EUR/GBP pair sooner or later. The EUR/GBP isn't the most volatile pair at the best of times, but it's still unusual for it to be trading in such a tight trading range, so I'm sure we are going to see a decent breakout.

The odds currently favour a downward move because the Supertrend indicator is still red on the daily chart (indicating a bearish trend) and the MACD and TRIX indicators look like they're about to turn downward as well.

The 4 hour charts aren't giving much away because the various moving averages, ie the 5, 20, 50 and 200 period EMAs, are all very close together (which is another positive sign that a breakout's on it's way). However I would certainly favour a downward breakout, and going back to the daily chart I believe a target of around 0.8850 is perfectly achievable because this is where the EMA(200) currently resides.

The alternative scenario is that the price moves above it's most recent highs and starts a new upward trend. The most recent high is 0.9154 and the daily Supertrend is currently 0.9147, so if the price does break through these two levels, it is likely to have a lot of momentum behind it and we could see a sustained move up towards 0.93 or 0.94. Overall though I think a downwards breakout is far more likely to happen.

It doesn't really matter though because the great thing about breakout trading is that you don't have to anticipate a move. You can simply wait for the breakout to occur and jump on board when the time's right.



Permalink • Print • Comment

Leave a Comment