EURGBP made an FX market reversal signal on its daily time frame, as price created a double bottom recently. The pair failed in its earlier attempt to rally past the neckline around the .8000 major psychological resistance but may be due for another test soon.
An upside break of the neckline could lead to around 250 pips in gains, as this is the same height as the chart pattern. This could push EURGBP to an FX market rally up to the .8250 minor psychological level or to the year’s highs near .8400.
On the other hand, if the neckline continues to hold as strong resistance, price could make its way back down to the lows at .7750 and create a triple bottom pattern. A break below the previous lows could also take place if selling pressure is strong enough. After all, stochastic is starting to make its way down from the overbought area.
EURGBP FX Market Outlook
Fundamentally speaking, the path of least resistance is to the downside, since the ECB is still open to further easing while the BOE has clarified that its next policy move would be a rate hike. However, what’s keeping the pound weak for the time being is the BOE’s shift to a more cautious stance, as it pushed back rate hike expectations to later on in 2015.
Weak inflationary pressures have led the BOE to downplay the chances of policy tightening early in the year, leading to FX market weakness for the British currency. Meanwhile, selling pressure could return to the euro if the ECB decides to unveil another round of policy easing measures in their upcoming rate statement this week.
Data from both economies has been more or less stable though, as inflation data from the euro zone and the U.K. came in line with expectations but indicated signs of weakness.
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