As per my posting below ( http://you-buy-the-high-i-sell-the-low.blogspot.com/2009/01/eurgbp-potential-lower-high-in-place-at.html) the expected break of trendline support off .7806 and .8844 has taken place. Examining short term structure, which is not detailed in the chart above, there is scope for today's fall to end close to .8820. If this does take place, then there is a possibility of a three legged correction and a return to the .9000 region. If however .8804 is broken to the downside, a bear flag will be triggered with the associated target lower. There is a reasonable chance of a return back to the .9000+ region hence the trade which is detailed in the chart above. Click on chart for a larger image.
I continue to think that sterling has a great deal of negativity priced in. In the balance sheet recession that we are in it is vital to have the flexibility to implement expansionary fiscal policy, as and when it is needed, (providing the debt capital markets don't punish you too severely for doing so). Given that members of the Eurozone are subject to the budget constraints set out in the Maastricht treaty this could turn out to be yet another item to add to the growing list of negatives for the Euro going forward.
Shame it did not retrace to your level, but great trade idea never the less. I agree that Eurozone should be weaker in the near term. .8233 a good exit point though.
ReplyDeleteGreat call on EURGBP, I think it has more to go too. Looking at volatility breakout shows that the move might have just started on a weekly basis.
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