Learn Forex: A EURGBP Channel for 2014 Trading

DailyFX

Talking Points

  • The EURGBP is in a multiyear downtrend.
  • Trend traders will see the 2013 rally as the market forming a lower high.
  • Resistance has formed a channel allowing traders to trade with the trend.

Finding market trends is important for a Forex trader so they can develop a trading bias to buy or sell a particular currency pair. Some trends move rapidly while others have smaller directional moves, but one thing is certain a downtrend is established by the market making a series of lower highs and lower lows. Conversely, an uptrend is defined as a market making higher highs and higher lows. As 2013 quickly comes to a close it is important to identify fresh trends for the upcoming 2013 trading year.

When looking for the best possible trends to trade into 2014, one pair stood out in my mind. While the EURGBP is not considered a fast moving pair compared to other Euro crosses, only moving an average of 38pips a daily, it does have consistent market direction when looking at a weekly or even a daily chart. Currently the EURGBP is continuing a 4 year down trend declining as much as 2046 pips from its December 2008 high at .9803. However, for the better part of 2013 the EURGBP was seen retracing.So can the EURGBP move back towards lower lows and be one of the strongest trends for the 2014 trading year?

Learn Forex – EURGBP Weekly Trend

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A_EURGBP_Channel_for_2014_Trading_body_Picture_3.png, Learn Forex: A EURGBP Channel for 2014 Trading

Moving into the daily chart seen below, we can better see the EURGBP and its advance for the 2013 trading year. Even though its longer term downtrend temporarily stalled, we can see a price channel developing on the Daily Chart. How can this channel be identified? It all begins by connecting the previous highs on the graph.

Below we can see the pricing channel created by drawing a trendline from the 2011 high at .9082 with the 2013 swing highs of .8814 and .8768. This line will represent a line of resistance for the channel. Once this area is identified, this line can be copied and applied to the graphs current lows. Once extrapolated, these lows will create an area of price support. On the chart below, this is done by connecting the 2010 low at .8067 with the 2012 low at .7751. Now that these areas have been identified traders may then apply the trend based strategy of their choosing to the graph.

Learn Forex – EURGBP Daily Channel

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A_EURGBP_Channel_for_2014_Trading_body_Picture_1.png, Learn Forex: A EURGBP Channel for 2014 Trading

My preference is to find opportunities to sell the EURGBP using the pricing channel mentioned above as technical levels of support and resistance. Traders can place entry orders near .8500 to sell resistance in the event of a retracement. Technical traders may also look for a breakout in the event the EURGBP begins moving towards lower lows. Regardless of the method chosen, a completion of the pricing channel allows to target prices near .7500.

---Written by Walker England, Trading Instructor

To contact Walker, email wengland@fxcm.com. Follow me on Twitter @WEnglandFX.

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