Critical Juncture for the EUR/GBP

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Critical Juncture for the EUR/GBP

Bullish Correction:
EUR/GBP has been bullish in October, rallying from 0.7764 to 0.8046. The 4H chart shows that the market gained some bullish momentum as the RSI pushed above 80, and was starting to show bullish bias with price above the 200-, 100-, and 50-period SMAs.

EUR/GBP 4H Chart 10/20
eurgbp 4h chart 10/20

(click to enlarge)

Losing Bullish Bias:
Entering this week, the EUR/GBP is losing those bullish momentum and bias signals. In the 4H chart, we are seeing price dip into the cluster of SMAs, and the 4H RSI falling below 40, which shows loss of the bullish momentum in October. Furthermore, price seems to be cracking this month’s rising trendline.

If October’s rally is reversed, EUR/GBP could be reviving a prevailing downtrend.

EUR/GBP Daily Chart 10/20eurgbp daily chart 10/20

(click to enlarge)

Downtrend:
The daily chart shows that the prevailing downtrend is intact. Although price crossed over the 100-, and 50-day SMAs and the RSI pushed above 60 to show loss of bearish momentum, we can say that it respected the prevailing downtrend.

Price held below the key multi-month highs around 0.8050 and respected a falling trendline that comes down from the July 2013 high near 0.8770, connecting with the 2014-highs around 0.84. Note that price is also pushing below the SMAs, reviving some bearish bias.

Key Juncture:
While we are seeing a bearish breakout in the 4H chart, we do see some key support levels just below October’s rising trendline. The 0.7875-0.7890 area represents a common support/resistance pivot area and a key juncture in the short-term. If price can hold above 0.7875 and return above 0.79, the consolidation and bullish correction scenario is still in play. A break below 0.7870 would likely revive the intact bearish trend, and expose the 0.7764 low on the year, which is also the 2012-low. Also note that in the 4H chart, a break below 0.7870 would clear below all the SMAs and add to the case of bearish continuation.

Then, in the short-term EUR/GBP might find some support around a support pivot in 2008, in the 0.7690-0.77 area.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.