Long on EUR/GBP as GBP Heads South After UK Data
UK Construction Report
The UK construction report missed expectations and the GBP didn’t like it. As I mentioned in the previous market update, the GBP was likely to move lower on a red number, but it wasn’t going to crash.
That’s exactly what’s happening, as the construction numbers missed expectations, although not by much. This sector was in contraction for a couple of months, and it has just moved above the breakeven level.
The Reaction
That being said, any bad number from this sector is a red flag. Forex traders know that and they have been alerted. The GBP/USD was sliding slowly in the last few hours leading to the release. But it started picking up the pace after the report was published.
GBP/USD broke below the 20 SMA on the hourly forex chart, and is heading for the 50 SMA, which stands now at about 30 pips lower.
The Trade
EUR/USD is moving lower as well, which has pushed the EUR/GBP lower as a result. The decline in this forex pair started yesterday around midday. It has continued into today as well. Now, the pair has been oversold on the H1 and H4 charts.
The 200 SMA is providing support on the H1 chart, while on the H4 chart we can see the 100 SMA doing its job. Besides that, we can see that stochastic has been oversold on both charts. We decided to go long on the EUR/GBP, however, we are playing the short side on GBP.
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