EURGBP Getting Ready to Ride the Wave Higher

The EUR/GBP has come under concerted selling pressure as a wave of negative sentiment swung over the pair following the Bank of England’s dovish comments on inflation. The pair subsequently declined sharply, however technical analysis is now signalling bullishness ahead as a major support line holds.

The pair could only be described as volatile in the past few days as a range of negative fundamental news hits both the quote and base pair. The slide initially started with comments from the Bank of England that suggested that the domestic inflationary environment had deteriorated, and that they now forecast rates remaining depressed until at least 2017. This news was then followed up by a highly negative retail sales result, from the Eurozone, that saw the key metric decline to -0.1% m/m. Subsequently, the pair swung wildly before managing to determine a trend and close higher around the 0.7153 mark.

Following a rally from the supporting trend line, technical analysis of the pair yields some interesting insights. The pair has produced a relatively bullish signal with the retracement away from major support at 0.7040. This level actually represents the commencement of a bullish wave pattern that could see the EURGBP heading back up to challenge the weekly or monthly high.

The RSI oscillator is also signalling a pending move to the long side as the indicator retreats out of oversold into neutral territory. In fact, RSI was indicating some divergence from the price action, whilst the bears sold the pair down towards support. Subsequently, it is no surprise that the EURGBP has now started to retrace to the long side.

In addition, a bullish Wolfe wave has setup which adds to the case for a series of waves targeting the monthly pivot point. The pattern was actually preceded by a 5 count of bearish waves prior to the initial push. Subsequently, expect to see the weekly pivot point come into focus at 0.7163 and in extension the weekly pivot at 0.7247.

However, a major fundamental event looms on the near term horizon, as the US Non-Farm Payroll figures fall due shortly. Although not directly related to the pair, the inherent volatility from that market event is likely to move prices across a range of currencies. Subsequently, watch for any change to the Risk-On/Risk-Off approach in the lead up.

In addition, next week’s UK Unemployment Claimant figures could prove pivotal for the pair following the dovish outlook from the BoE. Any deviation from the forecast of 2.0k could see the pair moving sharply.

Ultimately, to cement a move higher, the pair will need to surmount the 50.0% Fibonacci retracement level at 0.7214. A breach of that point could see both the monthly pivot point coming into focus in short order.