Euro And Pound Pick Up Momentum, Offer Distinct Setups

After an extended period of congestion, the Forex market is once again showing life with volatility and momentum that has produced new trends and forced other pairs into corners. With the euro and British pound in focus today, see where each of the DailyFX Analysts are looking for potential setups:

Currency Strategist - John Kicklighter

My picks: Pending EURGBP
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week

The euro and pound pairs are building momentum; but most of the crosses are already well on their way (and present unattractive risk/reward) or there is little fundamental impetus to keep the market moving should their be another shift in the financial crisis. Looking for clear technicals and fundamentals, the EURGBP's direction would seem obvious; however, the the pair has sold off hard over the Asian and European hours thanks to a wide selling of euros. Fundamentally though, the euro economy is still in a better position to survive these uncertain seas than the UK is. The latter is already suffering a deep housing recession, historical trade deficits, a financial sector crunch and dramatic decline in consumer activity. The Euro Zone is able to find a trade partner and consumers in its other members to help spread out similar risks. At the same time, a major shift in expectations cannot be ruled out (especially because it could lead to a major EURGBP break and trend change).

Technically, the pair has dropped 120 points overnight and is now coming up on a range of support around 0.7860/80. This is the biggest move for this pair in over a month-and-a-half, so the continuation needed for follow through would be difficult to generate today. Range trading between this level of support and 0.8030 resistance can support stable markets. A more cautious approach for range trading would be to look for 0.7800 for a congestion opportunity owing to the 200-day SMA and rising trendline from March which could naturally have a tight stop. However, range conditions cannot last forever. An eye should always be kept on a possible downside break of 0.78 which could mark the turn of the major trend. Should this occur, just a 50% retracement of the pair's trend up until now would target 0.7375.

Currency Strategist - Terri Belkas

My picks: Short GBP/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1-3 Days

GBP/USD has been holding to a range of 1.7985 - 1.8115 this morning, and it may be worth trading if this turns out to be a day of consolidation in the markets (which I think it will be). Right now, a short GBP/USD would be most beneficial to target approximately 1.80, but ultimately price will likely drop toward the next level of support at 1.7916 (the 61.8% fib of 1.7445 - 1.8671) as the fundamentals remain wildly out of favor for the UK.

Currency Analyst - David Rodriguez

My picks: EUR/USD Short
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks

I'm really at a loss as to predictions for near-term forex trading, and whenever this happens I fall back to my strong suit--System Trading. Removing any sense of emotion, I see that two of our forex trading signals systems have gone short the EURUSD as of 70 pips ago. Short-term targets for these trades start at 1.4205 and go all the way to 1.3862. Though it serves to note that the EURUSD currently trades at the 61.8 percent Fibonacci retracement of the 1.3880-1.4870 rally. A bounce here would signal that the short-term trend remains higher.

Currency Analyst - Ilya Spivak

My picks: Short EURUSD
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months

EURUSD has accelerated lower as the bullish correction from 1.3880 gave way to renewed bearish momentum. Price action is now poised to break below 1.4366, the 23.6% Fibonacci retracement of the 07/15-09/11 decline and the last hurdle before the pair is clear to challenge the lows again. Look to sell on a daily close below this level, looking for an initial objective at 1.40.

Currency Analyst - John Rivera

My picks: Long GBP/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 2-4 Days

The GBPUSD it appears to have found support at the 20-Day SMA. The better than expected 2Q final GDP numbers may give the Sterling support. After yesterday's sharp drop a retracement to 1.8250 isn't unreasonable. Although with the U.S. rescue plan in limbo, price action may be limited as traders try and asses the potential for a plan to pass.

Currency Analyst - David Song

My picks: Short GBP/JPY
Expertise: Fundamentals Combined with Technicals
Average Time Frame of Trades: 2 Days - 2 Weeks

The GBPJPY has held within a broad range between 184.00 and 197.50 throughout September, and has come under considerable selling pressures after touching an intraday high of 197.42 on 9/24. The GBPJPY has bounced higher after finding short-term support around 187.10, but has failed to break above 190.00, which has led me to hold a bearish outlook for the pair. I anticipate the pair to break to the downside over the week, and we may see the pair work its way towards the 9/16 low of 184.46.

DailyFX

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