EUR/GBP Developing a Double Bottom

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EUR/GBP Developing a Double Bottom

EUR/GBP continues to seek a price bottom. In July through most of August, price tried to form a rounded bottom after a low on the year at 0.7874. However, it failed to clear a previous resistance pivot and fell from 0.8036. With the prevailing trend being bearish and the daily RSI held below 60 – which reflects maintenance of bearish momentum – EUR/GBP looked ready for a bearish continuation. However, price stalled at 0.7981 and rallied choppily back to the 0.8036 high, testing the 100-day simple moving average (SMA)

EUR/GBP Daily Chart 9/8
eurgbp 9/8 daily chart

(click to enlarge)

The bullish outlook is not in the clear yet. First of all price will need to break above 0.8040 to establish a double bottom. Otherwise, if price retreats from 0.8036 and falls below 0.7950, the bearish bias will return, and pressure will once again be towards the 0.7874 low on the year.

Now if price clears 0.8040 we can expect a short to medium-term bullish correction or a consolidation. We shouldn’t be too bullish just yet considering the prevailing downtrend. During January and February EUR/GBP looked like it bottomed, but price retreated from 0.84 and continued the prevailing downtrend. If we have a price bottom again, let’s limit the bullish outlook to the 0.8150-60 level, which contains a previous support/resistance pivot and the 200-day SMA.

When we look at the weekly chart, we can see the significance of the 0.8150-60 area as a pivot. Therefore a bearish market should see sellers there especially now that the RSI is no longer showing oversold conditions. In fact, we should also be aware of a falling trendline connecting the July 2013 high of 0.8769 with the March 2014 high near 0.84. If the bearish outlook remains, the downside risk it back to the 0.7874 low, and then the 0.7764 2012-low.

EUR/GBP Weekly Chart 9/8
eurgbp weekly chart 9/8
(click to enlarge)

Trade Safe, Trade Well !

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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.