During Monday’s Sydney session, we noticed a second EUR/GBP Ichimoku signal confirmation on the daily time frame. Is this good enough to develop a trading strategy around it?
1- Technical Points
Daily Time Frame: After hitting a support at 0.8350 back in April, the EUR/GBP pair forming higher lows at 0.84 and 0.8525. While the pair opened above the daily Ichimoku cloud on May 18th, due to high fundamental volatility it reversed during the trading day.
However, on Monday’s Sydney session, we had a definite EUR/GBP Ichimoku signal confirmation as the pair opened with a gap above the daily cloud. Now it is important to note that the future cloud is flat and in red territory. The Tenkan line crossed above the Kijun line beginning of May. We do not have the 3rd Ichimoku Kinko Hyo confirmation at the time of writing. Based on our the 3rd strategy, the correction could be an interesting time to open a long position for traders with medium to high-risk tolerance.
EUR/GBP Ichimoku Signal Confirmation
Monday’s opening price falls right on the 61% Fibonacci retracement level. Support is set at 50% Fibonacci at 0.8559. Immediate resistance is at 0.8684.
Monthly Time Frame: This is where things get interesting. On the monthly chart, EUR/GBP has formed a definite bullish engulfing right above the monthly the 3rd.
EUR/GBP Ichimoku Signal Confirmation – Monthly Chart
The future cloud is moving upward. Is it trying to give us yet another EUR/GBP the 3rd signal?
2- Fundamental Points
The second point is that we suggest looking at the economic and political developments that could impact the currency pair.
EU Side: French election results really boosted up confidence in the EU and therefore the Euro crosses. To top that off, economic data continues to improve.
Market-implied odds of a rate hike by the end of the year are up to 34%, according to overnight index swaps. However a hike isn’t likely as long as the ECB continues to buy bonds under its asset purchase program, so markets are instead starting to discount a change in the language the ECB uses to describe the path of its interest rates, as well as another step down in its bond buying program.
