EURGBP Outlook and Trade Idea for Next Week

EURGBP 4-Hour Chart

I used to tell myself that trading expanding ranges was a bad idea. The market was trendless and whipsawing back and forth, so no good could come of trading it. In recent years my tune has changed. Once an expanding range is labeled as such, we can adjust our expectations for where our entry points will be (outside of prior swing highs/lows) and capture big price moves as market uncertainty pushes the highs and lows further apart.

No strategy is perfect. We may end up entering a bit early and getting stopped out before a big move even has a chance to start, or the price could break the expanding pattern. Once in the trade, volatility could also die down, forcing us to take a smaller profit/target than expected. That’s trading though. Since every trade is a risk, expanding ranges give lots of potential reward for the risk taken.

The EURGBP is in an expanding range since late August. Two trendlines, an upper and a lower, show where the price has typically (and approximately) reversed course. When the price approaches a trendline watch for a valid trade setup–touching or nearing the trendline isn’t a trade signal on its own.

Following the latest drop on October 28 the price has consolidated near the lower trendline. The consolidation is a requirement in order to consider a trade in this area. The price then needs to move above the high of the consolidation. This is a small gesture indicates the price has bottomed and is heading back into the expanding range.

This EURGBP trade was discussed in the October 30 Forex Trade Signals. Here are the details of the trade:

The long Entry is 0.71926. Stop Loss is 0.71391. Target is 0.7450. Reward to risk on the trade is about 4.8:1. On the chart below, the top of the yellow box marks the entry point. The bottom of the box is the stop loss, and the green line toward the top of the expanding range (but not right at the top) is the target.

EURGBP 4-Hour Chart

EURGBP 4-Hour Chart

Since it is Friday, traders may wish to hold off on taking a position until next week. This avoids the potential danger of news coming out over the weekend and being unable to liquidate the position. Big weekend price gaps are relatively rare, but it’s a risk to be avoided when possible.

There is little economic data scheduled for early next week in the EUR or GBP. On Thursday (Nov. 5) though the Bank of England provides a rate decision and inflation report at 7:00 AM EST–these are market moving events.

While not directly tied to this pair, the US issues the Non-Farm Payrolls report at 8:30 AM EST on Friday (Nov. 6). Since the EURUSD and GBPUSD are both impacted by the report, the EURGBP will also see a reaction.