Currency crosses can be a great option during times of increased US dollar volatility. Of course, I’m referring to today’s Fed rate decision at 2 pm EST.
As a currency cross, a pair such as the EURGBP is relatively insulated from US-centric news. This means it isn’t nearly as volatile as say the EURUSD or the GBPUSD.
With that said, it’s important to keep in mind that no market is 100% “safe” from today’s FOMC. So while the pair may not chop around as much as some others, the activity will certainly pick up before and after the event.
But we aren’t just looking at EURGBP because it’ll be less volatile than others over the next 24 hours. There needs to be a quality opportunity as well.
For that, we have to go back to the weekly forecast from December 4th. In that post, I mentioned the support level at 0.8340. The level had been a key pivot since late June, and we had no reason to doubt its significance going forward.
The 24 hours that followed that commentary produced a retest of the 0.8340 handle. By the end of the session, buyers had pushed the price 146 pips off of session lows.
If that weren’t enough, yesterday’s low was 0.8341. So it’s become clear that buyers favor this area. However, I see no reason to be bullish the EURGBP, at least not yet.
As mentioned ten days ago, the confluence of support around 0.8120/30 could very well be the final target for sellers. This area is the April high as well as trend line support from November of last year.
Also, a move to this region would close the gap that was left behind in the wake of the June 24th Brexit. An open gap such as this can attract a lot of attention and as a result can act as a magnet of sorts.
From here I’ll be watching to see if sellers can manage a daily close below 0.8340. If so, a retest of the level as new resistance could make for a compelling opportunity to get short.
The target at 0.8120 would give us about 220 pips of real estate, which is plenty with a proper entry.
Given that the trade idea calls for a daily close, I won’t be doing anything until today’s FOMC is behind us. In fact, I’ll be on the sidelines for at least the next 30 hours due to the combination of today’s FOMC at 2 pm EST and tomorrow’s BOE at 7 am EST.
Alternatively, a move higher from current levels would likely find sellers at the current December high of 0.8570.
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