EUR/GBP Signals Bearish Continuation With Breakout

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EUR/GBP Signals Bearish Continuation With Breakout

The EUR/GBP rallied from the low on the year made in July, 0.7874, to test the June high and resistance from a consolidation in June. It held at this 0.8033 pivot and retreated.

When you look at the 1H chart, you can see that a bearish trend is already developing in the very short-term based on price action, moving averages and the RSI. This is in the same direction as prevailing downtrend that is intact.

EUR/GBP 1H Chart 8/27
eurgbp 8/27 1h chart

(click to enlarge)

Bearish Breakout:

You can see that there was a consolidation to end last week, and the market dipped below this range yesterday (8/26). Today (8/27), price respected this range, and the 50-hour simple moving average (SMA) as resistance, thus confirming the bearish breakout.

As we get into the US session, price is extending lower, breaking a key rising trendline that we can see in the daily chart below, giving us more clues for the bearish continuation scenario.

As we can see in the daily chart, the current dip is cracking a rising trendline that comes up from the 0.7874 low. It looks like after a month in bullish correction, the EUR/GBP is ready for bearish continuation.

– Note that the daily RSI held below 60, which shows maintenance of the bearish momentum.
– The moving averages are in bearish alignment, sloping down, and now price is below all three (200-, 100-, and 50-day SMAs).

EUR/GBP Daily Chart 8/27
eurgbp daily chart 8/27

(click to enlarge)

To the downside, the first target/key support will be the 2014-low at 0.7874. We might expect some support as early as 0.79. However, at this point, price should start to hold below 0.7960 on a rally if the bearish continuation scenario is developing. Below 0.7874, the next key support will be 0.7764, the 2012-low.

Otherwise, if price climbs back above 0.7960, the EUR/GBP will be signaling that it is still neutral in the short to medium-term, within a consolidation mode. Even then, there will be bearish bias, and it would be premature to call a price bottom.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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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.