EUR/GBP: 5 Technical Reasons a Bearish Breakout is Imminent

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EUR/GBP: 5 Technical Reasons a Bearish Breakout is Imminent

Last week, we saw the EUR/GBP bearing down on a flag pattern that has now been forming for a little over 2 weeks.
eurgbp 07012014 4h chart
(eurgbp 7/1, 4h chart)

There are some bearish signals developing as we get into the 7/1 European trading session.

1) A flag pattern represents a pause in a trend, in this case, a bearish one.

2) Note that the 200- and 100- simple moving averages in the 4H chart are sloping down, while the 50 SMA is flat. Also, they are aligned so the 200 is above 100, which is above 50. The moving averages suggest that the bearish trend is intact at least in the 4H chart, especially when price is under the SMAs.

3) The flag pattern has been pivoted around the psychological level of 0.80. If price can hold south of 0.80, the bearish bias remains.

4) EUR/GBP opened this week with a failed attempt to challenge last week’s high, thus putting in a key lower high, suggesting that the bearish continuation swing could be starting.

5) There was also better-than-expected UK manufacturing PMI data, with the June reading coming in at 57.5 while forecasts were around 56.7.

At this point I would like to note that the title was a misnomer because number 5 was a fundamental factor. Oh well. Let’s move on.

Flag breakout scenario:
If EUR/GBP can break below 0.7980, we will have a key lower low as well as a key lower high adding to the bearish trend development. It will also have broken below the flag pattern. An additional bearish clue could be 0.80 turning into resistance.

First the 0.7960 presents at some near-term support. Then in the weekly chart, you can see some pivots from 2012, 0.7764, 0.7812, and 0.7923. The important point is that price has returned below the 2013-low and is now continuing towards the 2012 low of 0.7764. There has not been any evidence toward a significant correction.
eurgbp 7/1 weekly chart.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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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.