The EUR/GBP has been rallying in November after failing to clear below 0.78. This week-long rally reflects a market that has turned sideways in the medium-term as we can see in the daily chart. As we got in the 11/19 session, the EUR/GBP came up to a multi-month resistance area between 0.8035 and 0.8065. The significance of this area can be traced back to June’s support pivot. The 200-day SMA also resides here at the moment.
Bullish Breakout: If price breaks above 0.8065, it opens up the 0.8150, June-high. The EUR/GBP has already shifted from a bearish to a sideways market, and a break above 0.8065 would turn it bullish pending further confirmation.
One such confirmation would be the ability to hold above 0.79, forgiving some short-term breach.
Full Breakout Target: The range of the multi-month consolidation is about 300 pips. this is a wide range for the EUR/GBP, but some traders will project 300-pips above 0.8065 on a breakout, which would put the 0.8365 level in sight. Let’s first deal with a support/resistance area around 0.82, and hopefully get a confirmation of price holding above 0.79 before consider the next set of resistance pivots around 0.8350 and 0.84.
A break back below 0.79 can shift the mode back to neutral-bearish with pressure back on the 0.7766-0.78 lows. Now, on the other hand, if price broke above 0.8065, we should expect sellers in 0.8150-0.82 area. This area contains the June-high, a a previous support during the January-April consolidation before price action revived a prevailing downtrend in May.
(click to enlarge)
Reaction to the BoE Minutes:
The 4H chart shows a bearish engulfing candle in reaction to the release of the BoE meeting minutes. The minutes revealed nothing new, a 7-2 vote to hold rates for the 4th time in a row. Ian McCafferty and Martin Weale continued to vote for a rate hike. There were some expectations that they would vote to hold. After all the BoE did lower its growth and inflation forecasts in its latest BoE inflation report.
The bearish reaction is also coming off a bearish divergence at a key resistance, so we should not be surprised, and should looking for some bearish correction with the 0.7955, then the 0.79 levels in sight. We can probably expect this in the absence of the minutes. However, if the 2 dissenters did not maintain their votes for a rate hike, the market would probably have reacted differently and sold the pound, allowing EUR/GBP to breach the multi-month resistance. This was not the case, so let’s first look for that dip to 0.7950-0.7955 area.
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