EUR/GBP Rings in the New Year with a Bearish Breakout

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EUR/GBP Rings in the New Year with a Bearish Breakout

The EUR/GBP has been bearish in 2014, but has been consolidating since October. The daily chart shows the choppy price action that turned into a triangle.

EUR/GBP Daily Chart 1/2
eurgbp daily chart 1/2
(click to enlarge)

The daily chart shows that during the second half of December, price was testing this triangle support. Price action cracked the triangle support, but the breakout was not clear. During the 12/31 session, price fell relatively sharply below 0.78 and EUR/GBP ended up breaking into a new low below the previous 2014-low at 0.7766.

As we get started in the new year, EUR/GBP is bouncing back up from 0.7750. There were some manufacturing PMI data from Europe and the UK.

Eurozone Final Manufacturing PMI (December): 50.6
Forecast: 50.8
Previous Estimate: 50.8
Manufacturing in the Eurozone was almost stagnant at the end of the year. The read for December was revised slightly lower, but the 50.6 print was better than November’s 50.1.

UK Manufacturing PMI (December): 52.5
Forecast: 53.7
Previous: 53.3 (Revised from 53.5)
uk manufacturing dec 2014
(click to enlarge; source: forexfactory.com)
The pace of manufacturing growth in the UK slowed to a 3-month low in December. External demand was weak, and growth was dependent on domestic demand. Orders and output growth are two key components of the survey and they both fell to their 2nd lowest level in 1 1/2 years. Inflation remains subdued, dragged down by the dip in oil prices. The manufacturing survey adds reason to believe that it will be a while before the Bank of England can raise rates.

GBP-weakness: So, the UK manufacturing data point was relatively more disappointing than the Eurozone’s. In the short-term, this might put some pressure on the pound, but there is not relief for the euro neither.

Outlooks and Levels: If we see a short-term pullback in the EUR/GBP, we should monitor the 0.79 area. If it finds resistance there, the bearish breakout is still valid, and the outlook should be bearish.

Above 0.79, it is possible that the year-end dip was a false-breakout. The false breakout scenario opens up the 0.80-0.8050 consolidation highs, with risk of breaking above. This scenario does require some fundamental shift such as the ECB announcing that QE is no longer on the table.

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

2012-Low: It should be noted that the market is testing the 2012-lows around 0.7765 as well. If we see a daily candle close below 0.7760, and than next week’s price action close below 0.7760. We can confirm the bearish breakout.

Previous Post by Author: EUR/USD, GBP/USD, and USD/JPY Outlooks at Year’s End

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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.