As traders we need to have a bullish or bearish bias. Yet stating one without considering a time horizon is of little use, given the fractal nature of markets. And a good example of this is on EUR/GBP which could provide two opposing views depending on your timeframe.
On the four-hour chart we can see a strong bullish trend with a series of higher lows and shallow pullbacks. Moreover, without immediate signs of a top then we could assume the trend is to continue higher and head towards the 0.8768 high. Grated, RSI is ‘overbought’, yet this is exactly where we’d expect it with strong momentum. And the MACD and signal line have converged, yet overall both indicators point higher and there are no signs of a bearish divergence.
Prices are currently supported by the 8 period eMA and printed a potential swing low. From here traders could drop to a lower timeframe and seek bullish continuation patterns ahead of the weekend, until signs of weakness materialise. However, we urge caution as we approach the weekend given the extended nature of price action on the daily timeframe.
As of yesterday’s close, EUR/GBP closed higher for the 9th consecutive session (an event not seen since 2008 highs) and has had its best 9-day run since 2017. Furthermore. a small bearish hammer has appeared at the top of the Keltner band, so we’d prefer to seek a retracement before entering on the daily timeframe. Keep in mind we’re not saying it cannot go higher from here. But given we’re approaching the weekend after such a strong run, traders may want to book profits. But, more importantly, the reward to risk if less favourable at current levels given its close proximity to the 0.8768 high. Overall, we expect EUR/GBP to break higher and retest the 0.8840 high.
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