Today’s Trading Edge: EUR/GBP – sterling strengthens after inflation report

WWM EURGBP AUG 18 2015

The British pound strengthened against its major trading partners after a report showed a slightly better than expected 0.1% y/y gain.  Both the prior reading and forecast were flat. Core CPI also jumped an annual rate of 1.2%, with June being revised to 0.9%.   This marked the fastest pace with core CPI since February but, might not be a strong enough rise with inflation to be able to persuade the Bank of England into thinking a rate hike could be sooner.

The EUR/GBP daily chart shows the long-term downtrend strongly broke below the 50-day SMA and has found major support from the .70 handle.  If downside continues, the next major support level will come from the 2015 low of .6934.  A break below this level could see deeper support come from the .6814 level.

If we see price recapture the 50-day SMA, further upside could target the .7250 level.  Major resistance will come from the 200-day SMA, which currently trades at .7384 level.

The trade: Buy EUR/GBP at .6850, with a stop loss at .6750 and a take profit at .7050.  The Risk/Reward Ratio is 1: 2

 

Edward J. Moya is the Chief Market Strategist for edmoya.com, an educational website for foreign exchange and commodity traders. He has over 15 years of investment industry experience in forex, stocks, options and futures. At edmoya.com, Mr. Moya writes daily currency and commodity analysis and has authored numerous articles on trading using both technical and fundamental analysis for major financial publications. He is a contributor of technical and fundamental analysis in currencies and commodities to SFO, Market News International, and Forex Factory.

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