EUR/GBP in a Bearish Continuation Breakout

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EUR/GBP in a Bearish Continuation Breakout

In March, EUR/GBP made a low on the year at 0.7014 and then rebounded. This bullish correction stopped at 0.7384 and price action started being choppy.

EUR/GBP 4H Chart 4/13
eurgbp 4h chart 4/13
(click to enlarge)

The 4H chart shows that this choppy action ended up being basically a sideways range between roughly 0.7220 and 0.7385. Some would call this a double top, but the important things to draw from the current structure and price action is that the prevailing trend was bearish, and there is a bearish breakout from a consolidation. This signals bearish continuation.

If the market is indeed in bearish continuation, price should find resistance around 0.7250 if there is a pullback in the short-term.

To the downside, the first area to watch for support is around 0.7150-0.7175, a previous support/resistance pivot area in mid-March.

EUR/GBP Daily Chart 4/13
eurgbp daily chart 4/13
(click to enlarge)

Below that, we should be look for the bearish continuation scenario to test the 0.7014 low. As we can see in the daily chart, the pair has been persistently bearish. The moving averages (200-, 100-, and 50-day SMAs) are sloping down in bearish alignment, and price has been trading under them for the most part.

Also, the RSI held under 60, which reflected the maintenance of bearish momentum. With the bearish trend intact, where can we expect EUR/GBP to go to?

EUR/GBP Monthly Chart 4/13
eurgbp monthly
(click to enlarge)

We have to go to the monthly chart to see where price action on a historical basis. We can see that it is basically stalling on top of a previous multi-year consolidation range from 2003 through 2007.

Also, even the RSI in the monthly chart is below 30, an oversold signal for long-term momentum. So, if EUR/GBP fails to continue the downtrend in April and instead closes above 0.74, we are likely going to see a rebound, but one that is first limited to the 0.7750 pivot.

On the other hand, an April close below 0.70 would suggest continuation towards the 0.6540 low from that 2003-2007 range.

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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.