GBP vs EUR: Sterling Strength Tested in Relative-Value Trade

The British Pound (GBP) has been showing strength in its medium-term outlook, making it an attractive choice for traders. However, this is not a blind bullish trade on sterling, but rather a relative-strength test to see if GBP/USD outperforms EUR/USD.

A long position in GBP/USD against a short position in EUR/USD is the recommended setup. This pair trade isolates sterling's strength while reducing broad USD exposure. The daily chart for GBP/USD is neutral near 1.3538, but its weekly and monthly charts show strong buy signals.

The key to this trade is not whether sterling rises alone, but rather if it outperforms the euro. A sustained break above 1.3578 would strengthen the upside case, while a loss of 1.3488 would weaken the weekly structure.