EUR/GBP Bearing Down on a Flag Pattern

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EUR/GBP Bearing Down on a Flag Pattern

The 4H EUR/GBP chart shows a bearish market that has been consolidating for a couple of weeks within a channel that has a slight bullish tilt. This “channel” can be interpreted as a flag pattern within a strong bearish trend. Price has been sticky around the 0.80 area, but if EUR/GBP holds south of 0.80 to close the week, traders will be focusing on a flag breakout scenario. A break below 0.7980 opens up the bearish continuation scenario.
eurgbp 6/27
(eurgbp 6/27 4h chart)

The moving averages in the 4H chart (200-, 100-, 50-), are in bearish alignment. During this 2-week flag pattern price pushed above the 50-SMA, but held below the 100-SMA, not even close to indicating any signs of bullish reversal. The 4H RSI broke above 60, reflecting some loss of bearish momentum. If the RSI can hold above 40, the EUR/GBP would likely remain in consolidation mode. A break below 40 in the RSI would likely accompany a price break below 0.7980 as a bearish signal.

If price falls below 0.7980, we first see 0.7960 as possible support. However, if price does not pull back above 0.80, the bearish continuation scenario would remain in play. The weekly chart shows that downside risk extends to 0.7764, which would be the 2012-low. and also near the 2009 lows. You also see on the weekly chart that the market has been slightly bearish since 2009, when it peaked at 0.9798. You can interpret the market since that high to be in consolidation after a 2-year old bullish market from 2007’s low of 0.6534  (Remember when the euro was in an existential crisis?).
eurgbp 6/27/ weekly chart
(eurgbp weekly chart, 6/27)

The bearish outlook should be limited to the 0.7765 low, especially if the weekly RSI tags 30. In a consolidation market, which reflects EUR/GBP since 2009, the further away from the moving averages, the more likely there will be a reversion back towards them. If we develop a bullish outlook when price approaches in the 0.7765, first monitor 0.8160-65 as a key support/resistance pivot, then the 0.83-0.84 area, which is where the weekly SMAs are clustered, as well as where a falling trendline from 2009 projects.

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.