Market Anticipating a “NO” for Scottish Independence:
The EUR/GBP and other GBP-crosses are acting in favor of the British Pound. This can be attributed to what the market believes about today’s vote for Scottish Independence – that the vote will likely be “NO”. This also infers that part of the GBP-weakness in the last couple of weeks was due to pricing in of the uncertainty from this vote. Now that there is some clue that the the result will likely keep Scotland in the UK, the GBP is surging back.
EUR/GBP Bearish Continuation Breakout:
The EUR/GBP has been in a very choppy couple of months as we can see in the daily chart. In July the market found support at 0.7874. There there was some up and down price action, which by mid September formed a consolidation range between 0.7874 and 0.8065. In the past 2 days, as the Scottish Independence vote came to a front, EUR/GBP fell below the consolidation low, signaling bearish continuation.
It should be noted that the daily RSI held below 60, which reflects bearish momentum being maintained. Also, price eventually came back below 100-day and 50-day simple moving averages (SMAs), and now has all signs pointing south from a technical perspective based on the daily chart.
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If we get a pullback, a bearish market should keep price below 0.7950, given some elbow space. In the bearish scenario, the next key level will be the 2012-low at 0.7764, seen more clearly in the weekly chart. Now, if the vote is a “YES”, and the EUR/GBP does pop up above 0.7950, we should consider a possible reversal. Ideally, reaffirmation of 0.79 as support along with the yes vote, would be an indication that EUR/GBP is trying to bottom. However, if the EUR/GBP is going to rally from a such a crucial fundamental factor, we might not see much of a pullback, but more of a sharp v-shape type reversal. At this point, we should look for a major bullish correction, but should still consider the fact that the Eurozone is in shambles, so we should limit a bullish outlook at first to 0.82, where the 50-day SMA resides.
As price pushes at the 2012-low and a channel support, and as the weekly RSI approaches 30, we might consider another possible consolidation like the one we had in July and August. There is another support pivot, from 2008 around 0.7693. We might not expect a bullish reversal just yet, but we can expect some consolidation if price dips into the 0.7695-0.7765 area.
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