Time to Fade the EUR/GBP

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Time to Fade the EUR/GBP

The EUR/GBP has been in a bullish correction since the 0.7014 low on the year. As it approaches 0.74, I am proposing that it might be a good time and price to fade the pair.

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The 4H chart shows the bullish channel EUR/GBP has been in since the 0.7014 low. In this time-frame, the market does indeed look like it is reversing. However, based on the current policy stance of the ECB vs. the BoE, we should assess this rally as a bullish correction against a downtrend that has been in play since at least August 2013, from 0.8770.

EUR/GBP 4H Chart 3/27
Time to Fade the EUR/GBP
(click to enlarge)

With the prevailing bearish market in mind, let’s take a look at the daily chart, where my proposal comes from. In the daily chart, we can see that price has hit a falling trendline coming down from the 0.80 high in December 2014. We saw that traders respected this line during the 3/26 session and formed a bearish engulfing candle. Also note the respect of the 50-day SMA. Furthermore, the RSI came close to 60 and held under it. This shows maintenance of the bearish momentum.

EUR/GBP Daily Chart 3/27
eurgbp daily chart 3/27
(click to enlarge)

Now, let’s say the market is still in consolidation, we can still anticipate a bearish attempt at least towards the 0.7215 area. Going back to the 4H chart, we can see that this is a support/resistance pivot, and the bottom of the 200-, 100-, and 50-period SMA cluster. A hold above this level could keep EUR/GBP in bullish correction further. A break below 0.72 however should open up the bearish continuation scenario with the 0.71 handle and the 0.7014 low in sight.

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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.