EUR/GBP: Trade Opportunity Ahead Of Key Risk Events

Although this week we have two major risk events that could distort the course of EUR/GBP, the fundamentals on long term are supporting a further drop in this currency. The ECB launches on September 18 the TLTRO facility, and the key issue is the extent of the participation. The latest ECB rate cut that pushed the repo rate to 5bp lowered the cost of borrowing from the TLTRO to 15bp. The median estimate in a survey by Bloomberg is that banks will receive 150 billion euros. Predictions ranged from 100 billion euros to 300 billion euros. In my opinion, anything less than 100 billion could trigger a EURO rally for short term.

The second risk event is the Scottish Referendum which was hardly more than a minor risk event on most investor's radar until a single poll showed the independent with a slight lead. With 48 hours left to the referendum, the polls are more balanced now, with NO leading....again.



Assuming that the TLTRO will trigger more than 100 billion euros and that the NO will win the Scottish Referendum, selling the EUR/GBP is a great trade opportunity from current levels. If we look at the weekly chart there is no doubt that the main trend is bearish and 0.8030 is the resistance - it will be a great entry - while 0.7890 is support. If that support will be broken, the next support will be at 0.7750 and after that - longer term target - we have to look at 0.7230. In my opinion, 0.7230 could be reached within 3 months.



On the daily chart, EUR/GBP is pushing back above 0.8000 and if one of the two key events is going to have a different outcome this pair might break 0.8030 resistance and go for the descending channel resistance in the 0.8100 area. Above that, we have the 200 DMA at 0.8150 and I think that will be the last level to monitor for a bearish EUR/GBP. Above 0.8050 we turn bullish on this currency pair. The only thing that could trigger such an outcome is the Scottish Referendum offering a surprisingly YES win.




The polls close for the Scottish Independence Referendum at 10PM BST on Thursday, 18 September but the official results will be released the next day, within 9 AM on Friday 19. I highly recommend you to be cautious until the official results will be out. However, I would not chose to have a close SL as I am not excluding a short term squeezing in every GBP crosses before the main trend resumes.