On Wednesday EUR/GBP took a massive dive, 200 pips to be exact. 200 pips are considered quite a big move in this forex pair by the way.

That dive came after the announcement of UK general elections which will take place on June 8^th as we now know. The Euro benefited from that announcement as well that day as EUR/USD climbed about 200 pips.

But that was nowhere near the 400 pips surge in GBP/USD, so obviously EUR/GBP would lose 200 pips. This retracement presents us with two trade scenarios though:

Trade Idea #1

However, this forex pair has climbed 100 pips since that day and has formed an uptrend. So, if you have enough skills you can play this uptrend with short term forex trades, targeting 30-40 pips.

Wait until we reach the 50 SMA if you are buying

As you can see on the H1 forex chart above the uptrend has been unfolding in waves, which is almost always the case with trends.

Every time the stochastic indicator has become oversold, the buyers jumped in and pushed higher. Now stochastic is almost oversold, we´re close to the 50 SMA (yellow) which is likely to provide support and close to the ascending trend line as well.

Together with the uptrend, this makes it four technical indicators which point up in the short term, so you can play this short term scenario with 30-50 pip targets and a tight stop below the trend line.

Trade Idea #2

The other scenario consists of playing the long term downtrend. As we see on the H4 chart below, this forex pair has been in a long term downtrend during the last several weeks, culminating with the big post-UK election fallout.

The 20 SMA is providing resistance again

But now, this forex pair has reversed and is nearly 100 pips up from the bottom. It reached 0.8415 which is exactly the 50% Fibonacci retracement level. That alone in itself is a very strong indicator to go short with an 80-100 pip target at least and a stop above that level.

But there are two more, stochastic is overbought and the 20 SMA (grey) which has provided solid resistance during the last two weeks is doing that again.

So, that makes it three technical indicators pointing down. As mentioned above, you can either play the short term uptrend with short term forex trades until the next wave of the long term downtrend resumes. When it does, you can open a long term sell trade.