EUR/GBP – Momentum Shift Suggests Further Bullish Correction

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EUR/GBP - Momentum Shift Suggests Further Bullish Correction

EUR/GBP appeared to have revived its bearish trend in April after retreating from 0.7379. It still has a medium-term bearish outlook, but since finding support at 0.7118 we might have to wait for some further bullish correction before the bearish trend continues.

EUR/GBP 4H Chart 4/29
eurgbp4h04292015
(click to enlarge)

The reasons I believe there is going to be further bullish correction in the short-term:
1) Since the 0.7118 low, bullish candles have been stronger than bearish ones.
2) Price has returned above the 100-, and 50-period simple moving averages. This takes away the bearish bias but does not signal any bullish outlook yet.
3) The RSI has pushed above 60, which reflects loss of the prevailing bearish momentum. If it tags 70, it would show bullish momentum and put pressure towards the 0.7380 high.
4) Price has broken above a couple of falling trendlines.

At this point a break above 0.7240 with the RSI pushing above 70 will introduce further upside risk towards 0.7380.

However, failure to push above 0.7240 with a return below the 0.7165-0.7170 support/resistance pivot area would return the pressure to 0.7118, and likely revive the bearish outlook.

EUR/GBP Daily Chart 4/29
eurgbpdaily04292015
(click to enlarge)

The daily chart shows a bearish market as price holds under the 200-, 100-, and 50-day SMAs, which are sloping down and in bearish alignment. The RSI also held under 60. Below the 0.7118 low, the 0.7014 low down to 0.70 would be in sight.

In the bullish correction scenario, if price can starting holding above 0.72 after a break above 0.7240, we can see a rally towards the 0.7425-0.7430 support/resistance pivot area. We should limit the bullish outlook because the prevailing downtrend is still bearish, and the ECB is still much more dovish than the BoE. Around 0.75, the market would have completed an ABC correction, so let’s not project the potential bullish outlook beyond 0.75 at the moment.

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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.