Last Week EUR/GBP looked ready to continue a downtrend after the ECB and BoE monetary policy decisions. It appeared that the ECB is gearing up for QE, and the BoE is pushing back its rate hike schedule, both relatively dovish.
However, we saw price bounce up from November’s consolidation low near 0.78. The 4H chart shows the market drifting back up and now testing the consolidation resistance just above 0.7860.
As price approaches 0.7860, and the 4H RSI approaches 60, let’s see what happens If the market fails to push above this area during the 11/10 session, we should anticipate a bearish attempt, again toward the 0.78 low. Let’s examine a trade idea here:
Trade Idea: Short at 0.7860
Stop: 0.7875 (Risk: 15 pips)
Target 1: 0.7815 (Reward: 45 pips)
Target 2: 0.78 (Reward: 60 pips)
Reward to Risk for Target 1
Reward to Risk for Target 2
Now, if the entry is not ideal, 0.7850 can still get a reward to risk of 2:1 with a stop at 0.7875 and a target of 0.78.
If price fails to break back below 0.7835, then the bearish outlook might be in trouble. A break below 0.7830 should help confirm the bearish outlook as that would mean cross below some support factors within this month’s price range.
A third potential target should be noted. Below 0.7795, the next support would be the 2014-low at 0.7766. If it seems like this scenario is panning out, we should probably take partial profit off a short position before considering an extension to 0.7766 or below.
(click to enlarge)
What if price breaks above 0.7870? Then, EUR/GBP would break above the consolidation range and be above the cluster of 200-, 100-, and 50-period SMAs in the 4H chart.
The thing is, the prevailing trend is still bearish, and the ECB is more dovish than the BoE. We should not expect a bullish trend to develop, but rather sellers to limit the bullish outlook.
The next resistance area is like around 0.7910, a support/resistance pivot. Look for sellers here especially if the 4H RSI is in the oversold area (above 70).
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