EUR/USD in a Bearish Breakout; Will GBP/USD Follow?

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EUR/USD in a Bearish Breakout; Will GBP/USD Follow?

The EUR/USD consolidated this week after marking a new low on the year at 1.2165 . The pair drifted up to 1.2250, clearing the 100-, and 50-hour SMA while pulling the RSI above 70. This showed some near-term bullish momentum.

However as we get in the Friday (12/26) session, after holiday trading, we are seeing the EUR/USD signal bearish continuation with a breakout.

EUR/USD 1H Chart 12/26
eurusd 1h chart 12/26
(click to enlarge)

Bearish Breakout: The 1H chart shows price sliding back below the 100- and 50-hour SMA, and also breaking below this week’s rising speedline. This breaks the consolidation structure and signals bearish continuation, with risk of breaking below the 1.2165 low into fresh lows on the year. A failure to break below 1.2165 with a rally back above 1.2220 would suggest further consolidation. A break above 1.2260 will be needed to open up a bullish correction scenario.

EUR/USD Monthly Chart
eurusd monthly chart 12/26
(click to enlarge)

Key Supports: The next two key support factors, according to the monthly chart, will be the 1.2042, 2012-low, then the 1.1876, 2010-low.

GBP/USD is in a similar technical set up, although it still needs another push lower to show bearish continuation.

GBP/USD 1H Chart 12/26
eurusd monthly chart 12/26
(click to enlarge)

The 1H GBP/USD chart shows that it has also been consolidating this week after making a new low on theyear at 1.5485. After rallying to above 1.5580 in a flag pattern, it is starting this week threatening to break below it. Price action has so far been sideways, so even though the rising support line is broken, it is not a convincing break. At this point a break below 1.5540 should show a bearish breakout, especially if the 1H RSI also falls below 40, which would show loss of this week’s bullish momentum. This opens up the 1.5485 low on the year with risk of breaking lower.

While a break below 1.5540 shows break from the consolidation pattern, GBP/USD will also need face a support/resistance pivot area right around 1.5520-1.5530. Failure to clear this pivot area followed by a rally back above 1.5580 would signal further bullish correction .

GBP/USD Monthly Chart
gbpusd monthly chart
(click to enlarge)

Key Supports: The monthly chart shows that if price approaches the 1.5235-1.53 area, GBP/USD will be testing some common lows from late 2010 through 2012. Below that, the next key support will be around 1.50, before opening up the 2013 low at 1.4813.

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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.