EURGBP has been trading in a downtrend for the past weeks and may be due to make a corrective forex wave pattern after finding support at the .7600 major psychological handle. Price could pull up to the descending trend line on the 4-hour forex chart as it lines up with the .7800 major psychological resistance.
In addition, the 61.8% Fibonacci retracement level is closest to the trend line and the .7800 handle, which might act as the line in the sand for any potential pullbacks. A break past this resistance area could suggest that a reversal is starting to take place.
Forex Wave Pattern Forecast
If the .7800 major psychological level or any of the Fibs hold as resistance, EURGBP could resume its impulse forex wave pattern and test the previous lows at the .7600 mark. Stronger selling pressure could lead to a downside break of support and the formation of new lows, possibly at the .7500 mark or even lower.
Stochastic is indicating that there’s a bit of bullish momentum left for a higher pullback but it is almost in the overbought region already. Once the oscillator starts moving south, euro bears could take control of price action and complete the corrective forex wave pattern.
In addition, a bearish divergence appears to be forming since price made lower highs while stochastic had higher highs. This is additional confirmation that selling pressure is bound to return and lead to more losses for EURGBP.
Event risks for this forex wave pattern setup include the ECB interest rate decision, during which Governor Draghi is expected to announce actual quantitative easing. Aggressive stimulus efforts could result to more euro weakness against its forex counterparts. Apart from that, the BOE minutes are also up for release this week and a hawkish tone could keep the pound supported.
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