“The USD is King of the Forex”. That was yesterday’s article.
BUT who will take 2nd place and win the Silver medal?
In the shadows of the recent USD strength, the Euro and GBP have been involved in a tight race for 2nd place.
The Euro was a clear winner on Monday and Tuesday. But the GBP fought back hard and a very quick down move took place on Thursday.
EURGBP grid lock
It is interesting to look at currency correlations to have an idea which currency pair is best to trade.
For example yesterday the GBPUSD was moving downwards. But GBPNZD crashed a lot more than for example the GBPAUD because the AUDNZD was moving down. This meant that:
1) The NZD was temporarily stronger than the AUD (1 hour chart);
2) And that the NZD was benefiting the most from the GBP weakness;
3) Hence the GBPNZD moved down the most.
It is very important to keep an eye out on these currency crosses and make sure you are aware of the Forex correlations. It can give huge benefits!
Read more here on this topic of currency currency correlations and how it to trade using correlations in the Forex.
The EURGBP is one of these examples of a currency cross.
Do you trade this currency yourself? Some traders LOVE the cross because it usually does not move that wildly. Tell us what you think in the comment section down below!
Why the gridlock? Lets start with the week chart!
Obviously the week chart shows a massive up trend dating back to 2008 and 2009.
Ever since the currency hit the 0.98 top, the currency cross has been moving down with many ups and downs.
1) Clearly the upside had a lot more momentum than the downside;
2) The downside correction respected and bounced at the 618 Fib;
3) The EURGBP is either in an downtrend channel (black lines);
4) Or the currency is either correcting the up move with a massive bull flag pattern (black lines).
What will be: the bull flag or the down trend channel?
Only time will tell! But the key levels to keep an eye on are;
1) The daily top at 0.8810 (red box) à a break of that level will signal that this downside is NOT a trend but indeed a bull flag;
2) The daily tops at 0.8150 (green box) à a break of that level will signal that this downside is indeed a trend but NOT a bull flag.
With a break of those levels we could be able to see good trades to the up side (blue boxes) and downside (dark red boxes).
If we add a bit of basic EW theory into the mix on the day chart then we can see a potential:
– Wave 1 (blue)
– Wave 2 (blue)
– Wave 3 (blue)
- 5 internal waves (green)
– Wave 4 (blue)
- ABC internal structure (green)
This is my main account. BUT it could turn out to be a ABC. My count is incorrect when price territory of this potential current wave 4 goes within wave 1 at 0.8150.
If we add trend lines and Fibinto the mix on the day chart then we can see this:
1) Currency is at the 500 Fib;
2) Currency is making a downtrend;
3) Currency has a clear down trend line (black);
4) Currency has a clear up trend line (purple);
5) Currency has a clear bottom line (dark red).
Whenever the EURGBP breaks out of the black or purple line, this could be valuable information to determine if we get the weekly upside or downside break.
Any price above the 500 and 618 Fib levels are still in clear bullish territory however.
The 4 chart is fascinating because if the following:
– Downtrend stalled at double bottom (green line);
– Steeper down trend lines were broken to upside (red lines);
– Huge down trend line indicating downtrend (black) is still intact;
– Currency is now building up trend or bear flag (dark red).
A break of the green line could see the EURGBP fall to the daily 618 Fib.
A break of the black line could the see the EURGBP move up to the top and maybe break to the upside.
Which one will it be?
The future will show us. In any case the 1 hour chart, considering the large sideways move, doesn’t seem to know 😉
Hope you enjoyed the analysis on the EURGBP! Let me know down below if you did thanks!!
Also hope that the Forex correlation explanation makes sense. Let me know as well if you have any questions on that.
Thank your reading and your feedback!!!
And Good Trading!
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