EUR/GBP Price Analysis: Downmove reaches critical support level

EUR/GBP price has fallen to support from the top of a multi-month range at 0.8590.
Despite bearish signs the pair could yet rally as the short-term trend remains technically bullish.
A decisive break below the support level, however, would indicate deeper decline back into the range.

Joaquin Monfort FXStreet

EUR/GBP price has reversed and fallen to a key support level at around 0.8590, where it is currently consolidating.

During volatile trading on April 19 the pair broke out of its multi-month range and rose up to a peak of 0.8645, however, it quickly reversed and fell back down.

EUR/GBP Daily Chart

EUR/GBP hit its initial conservative target for the range breakout at the 0.618 Fibonacci extrapolation of the height of the range higher. This could mean there will be no further upside. However, if the pair reaches the optimistic target for the breakout it could still rally up to roughly 0.8660.

The pair formed a bearish Tweezer Top Japanese candlestick pattern at the highs (circled) which occurs when two consecutive days have similar candle wicks (the thin upper part of the candle) and these wicks end at similar highs. It is a fairly reliable reversal sign.

The support level currently holding up price is the top of a range that began in February. It is likely to be a tough nut for bears to crack and push price lower.

A decisive break below the top of the range would be required to confirm more weakness possible to a target at 0.8530.

“Decisive” means a break by a long red candlestick that closes near its low or a break by three consecutive red candlesticks.

4-hour Chart

The 4-hour chart shows that a bearish M-shaped Double Top pattern formed at the highs of April 22-23. The pattern subsequently broke below its neckline (gray line at 0.8622) and plummeted. It has reached its price target which is equivalent to the height of the pattern extrapolated lower. This suggests a waning in bearish momentum.

The pair is not technically in a short-term downtrend despite recent weakness. Ideally it would need to form a more consistent trend of falling peaks and troughs before it could be said to be in a downtrend.

Since there remains a chance EUR/GBP could still be in an uptrend, and that support from the top of the range has not yet been broken, the materialization of further upside is still a very real possibility.

The level of the neckline of the Double Top at 0.8622 is likely to present resistance if an upmove evolves.

Author

Joaquin Monfort

FXStreet

Joaquin Monfort is a financial writer and analyst with over 10 years experience writing about financial markets and alt data. He holds a degree in Anthropology from London University and a Diploma in Technical analysis.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD drops to daily lows near 1.1630

EUR/USD now loses some traction and slips back to the area of daily lows around 1.1630 on the back of a mild bounce in the US Dollar. Fresh US data, including the September PCE inflation numbers and the latest read on December consumer sentiment, didn’t really move the needle, so the pair is still on course to finish the week with a respectable gain.

GBP/USD trims gains, recedes toward 1.3320

GBP/USD is struggling to keep its daily advance, coming under fresh pressure and retreating to the 1.3320 zone following a mild bullish attempt in the Greenback. Even though US consumer sentiment surprised to the upside, the US Dollar isn’t getting much love, as traders are far more interested in what the Fed will say next week.

Gold makes a U-turn, back to $4,200

Gold is now losing the grip and receding to the key $4,200 region per troy ounce following some signs of life in the Greenback and a marked bounce in US Treasury yields across the board. The positive outlook for the precious metal, however, remains underpinned by steady bets for extra easing by the Fed.