EURGBP is plunging hard today in what is a broad reversal in GBP pairs (GBPUSD also spiking higher) following the news that the UK Government is considering a full U-turn of the planned tax cuts and expanded budget spending. This news is as best as it could get for the pound. Namely, as we said a few weeks ago in our weekly Fx post, only a full reversal of Liz Truss’ planned policies could save the pound. 

It seems things are moving in that direction now, although there is no official confirmation that a full U-turn is coming as of this moment of writing. Nevertheless, there is no smoke without a fire, so at least a partial or some form of a U-turn is coming. This is all the markets currently need to reward the beaten-down pound. Hence, it seems like a good time to jump on a long GBP trade (short EURGBP in this case).

The technicals are confirming the news about the U-turn. EURGBP is breaking below the neckline of a “tall” head and shoulders top formation (see chart below). The neckline support rested around the 0.87 level, where we now have a decisive break lower after the news about the U-turn. Such momentum breakouts driven by fundamentals are usually genuine, hence the short EURGBP trade idea.

Interestingly, a few weeks ago, we also issued a short EURGBP trade, but that was before the Government’s budget debacle started. So, the trade was never triggered as the price blasted through the technical levels. B

But, here it is, EURGBP returning to the same levels from a few weeks ago, and with a U-turn, in the same fundamental backdrop. The current setup looks like a decent opportunity to go short, with attractive risk-reward also.

Entry:

• Short entry around current levels (0.8650), or higher if possible (if the market gives a chance)

Stop loss: 

• Above 0.8750, near the most recent swing high

Targets:

• 1st: 0.85
• 2nd: 0.84