EUR/GBP Confirming the Bearish Continuation Breakout

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EUR/GBP Confirming the Bearish Continuation Breakout

The March Correction: In march, we saw EUR/GBP rally from its low on the year at 0.7014 up to 0.7384 last week. Then, the market stalled and started to show initial signs of reversal in the 4H chart, which would be a sign of bearish continuation in the higher time-frames.

EUR/GBP 4H Chart 3/31
eurgbp 4h chart 3/31
(click to enlarge)

Reversal Signs: In the 4H chart, we can see that after a retreat to above 0.7270 last week, there was a bit of a pullback. This pullback failed to climb back to test the previous high at 0.7384. Instead it turned into a bit of consolidation around a rising trendline followed by an eventual break below this rising trendline.

Also note price sliding below the 200-, and 50-period SMAs. Meanwhile, the 4H RSI is clearing below 40, which shows loss of the prevailing bullish momentum.

These signs combine to tell us that EUR/GBP is likely in a bearish continuation mode. In the very short-term (within a session or two), the pair looks poised to test a key support/resistance pivot in March, around 0.7150. Here, we might see some support especially if the 4H RSI is oversold, and even more so if there is a bullish divergence.

Pullback Scenario: Now, if the market is indeed in bearish continuation mode, a bounce off of 0.7150 should find resistance before or around 0.73 and the 4H RSI should then hold under 60. If these conditions are met, we can look forward to EUR/GBP testing the 0.7014 low, with risk of break to 0.70 and perhaps even lower in extension of an existing downtrend since 2009.

EUR/GBP Daily Chart 3/31
eurgbp daily chart 3/31
(click to enlarge)

Bears in Control: In the daily chart, we can see that bears have maintained the technical bias as price holds under the 50-day SMA and the daily RSI holds below 60. Also note that price was holding under the falling trendline coming down from Dec. 2014’s high around 0.80.

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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.