EURGBP in play
The first time I heard it mooted in the current Brexit debacle I thought that a sunset clause on the Northern Irish border makes sense. Adam reported on it's re-mergence in proceedings on Friday late into the closing session. The political appeal of the sunset clause means the EU keeps face and Britain can appease the leave MP's . As crazy as it might sound there has to be some movement here and this seems the most likely area at the moment. No-one wants a no-deal Brexit, something May has reportedly ruled out to her cabinet, and the fact that the market is consistently pricing it out tells me that there is some kind of movement behind the scenes here with the EU. If not now, then there will be. The GBP was the top performer last week making gains of 2.52% against the dollar.
I have been bullish on the GBP for awhile , as I have been mentioning my reasons for this shift, and I am expecting GBP support medium term. The pair I like for a potential trade is the EURGBP, since we have a more bearish ECB responding/or at least acknowledging a eurozone slow down. Here was Greg's comments in the session wrap on Thursday:
However, Europe had lower PMI flash data. Draghi did talk with more of a cautious tone with regard to the economy and inflation. He did not walk back the end of summer rate hike just yet. Also, Germany lowered growth for 2019 from 1.8% to 1.0%. That is a big ratchet down. As result, European yields moved even more than US rates (see changes below). The 10 year benchmark notes fell from -4.5 bps to -9.2 bps (vs -2.9 bps in the US 10 year).
So, the risks for this short term version of this trade are obvious and tilted to the GBP side. If we have any unexpected Brexit related news that shocks the GBP the volatility could whip price around. So, proper risk management is , as always, essential.
Entries are marked on the 1hr EURGBP chart below at the pivot point at 0.8700 for a retracement entry to the 100 EMA. Stops can be placed above the red 200 EMA and above the R1 pivot point at 0.8800. Alternatively, go with the breakout, sub 0.8600 and place a stop that is 40% of the Average true daily range for the EURGBP pair.
Summary:
Entry on retrace
Entry: 0.8700
Stops: 0.8800 or a tighter stop at 0.8775
Target: 0.8560