EUR/GBP Confirming a Bullish Breakout

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EUR/GBP Confirming a Bullish Breakout

Choppiness: Since mid-November, EUR/GBP fell from 0.8038 to 0.7832. Then, in early December, it stabilized above 0.7832 and rallied in a choppy manner as can be seen in the 4H chart below.

EUR/GBP 4H Chart 12/15
eurgbp 4h chart 12/15
(click to enlarge)

Bearish within Sideways Market: Now, in the 4H chart, we can tell that the bearish attempt since mid-November is within the context of a sideways market because the moving averages are clustered together and moving sideways. There is still some bearish momentum bias with the RSI being able to tag 30, and holding mostly below 60. As we begin the week, the RSI is again testing 60.

Bullish Confirmation: Price action is probably the most important clue for technical assessment. It has rallied above a falling trendline and the cluster of SMAs. After the initial breakout last week, EUR/GBP retreated. However, during the 12/15 European session, we saw a bullish engulfing candle bounce off the cluster of SMAs. There are 2 bullish signals here: 1) the engulfing candle, and 2) the slingshot action off the SMAs. This gives the US session a bullish outlook, and confirms last week’s bullish breakout.

In the near-term, the bullish target would be 0.7975-0.7980 a support/resistance pivot area. Let’s take a look at the daily chart for the bigger picture.

EUR/GBP Daily Chart 12/15
eurgbp daily chart 12/15
(click to enlarge)

Range Resistance: As noted earlier, EUR/GBP has been trading sideways since September. Before that, the trend was bearish. Therefore, we should respect the consolidation range resistance in the 0.8035-0.8065 area.

Bullish Breakout Scenario: A break above 0.8070 would be a major bullish signal, suggesting that a price bottom is in place and opening up a bullish outlook in the medium-term.

From the weekly chart, we can also see that ta break above 0.8070, would be a clear break above a falling trendline since 2013, from 0.8769. This bullish scenario opens up the 0.83-0.8350 area, where the 200-, and 100-week SMAs reside.

EUR/GBP Weekly Chart 12/15
eurgbp daily chart 12/15
(click to enlarge)

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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.