The EUR/GBP pair has been relatively stagnant from a longer-term perspective for some time now. We have essentially been tracing a 400 PIP range for a little over a year now. However, recent moves have suggested that the 0.84 level will in fact be broken to the upside. While this is obviously a bullish sign, the truth is that there is a significant amount of noise above, and the 0.86 level looks to be very resistive.
The biggest problem with this pair is that you are comparing two currencies that are quite frankly favored overall at the moment. You are comparing the Euro, which seems to never really get above, against the British pound, which is a strong currency in and of its own right. That being said, the beauty of this currency pair is the fact that the PIP value is much higher than most. In other words, if we broke out above the 0.84 level and went to the 0.86 level, 200 pips in this pair is much more like 350 pips in many of the others.
Range bound market, but very profitable if you are patient enough.
I believe that this will continue to be a fairly range bound market, but if you are patient enough you can make quite a bit of money trading this type of set up. After all, it appears that we have some fairly consistent levels here, as the 0.84 level seems to be a good “midpoint” for the market. In other words, a lot of traders probably think of it is “fair value” at the moment. That’s valuable information, as it seems to be where price “flips” on the chart. This means that if we break above the 0.84 level, we will more than likely go to the extreme of the bullish side, sore close to the 0.86 handle.
One thing I would bring to your attention though is that the highs are most certainly getting lower over time. In other words, I think this pair is going to have quite a struggle to get above the 0.86 level, and quite frankly I would be more than willing to take profits at that level. I think this is the type of market that will probably be traded off of the four hour chart for the next few months, but again, the PIP values are higher so it all balances out in the end. Think of this market as two rectangles, one between the 0.82 and the 0.84 level on the bottom, and the other one between the 0.84 level on the bottom, and the 0.86 level on the top. If you play the market as two rectangles, you should do quite well.
