Last Wednesday, we discussed the potential for a EURGBP to form a meaningful bottom if rates could break above the key .7980 area (see “EURGBP: Why .7980 is the Most Important Number in Europe Right Now” below for more). Though rates inched above that level to close last week, this week’s price action has been extremely disappointing for the bulls, with rates pulling back to the mid-.7900s in lackluster trade. However, as my colleague Kathleen Brooks noted earlier today, the imminent release of UK employment data, and more importantly, the Bank of England’s Quarterly Inflation Report (QIR), should inject some much needed volatility into the pair.
On a technical basis, the most compelling formation is the 5-week inverted Head-and-Shoulders pattern. For the uninitiated, the classic price action pattern shows a shift from a downtrend (lower lows and lower highs) to an uptrend (higher highs and higher lows) and is typically seen at major bottoms in the chart.
In this case though, it’s critical to note that the pattern is not confirmed unless rates are able to break above the “neckline” in the .7980-90 zone. Thus far, we haven’t seen a conclusive break of the neckline, but if we do, the pattern would project a potential move up to the measured move target around .8100. Beyond the H&S pattern, both the RSI and MACD have been trending higher since mid-June and are approaching trend-defining levels (60 in RSI and 0 in the MACD).
Given the growing evidence of a potential bottom in EURGBP, a weak employment report or downbeat QIR tomorrow could provide the catalyst for a major breakout above .7980-90. If we do see a bullish breakout, traders will likely start to turn their eyes upward toward .8075 (38.2% Fib retracement) or .8100 (inverted H&S measured move target) next. On the other hand, a strong employment report or more hawkish QIR may keep EURGBP mired in its recent .7880-.7980 range for the remainder of the week at least.
Source: FOREX.com
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.