EUR/GBP Price Analysis: Short-term trend in doubt as falling channel remains shallow

EUR/GBP underwent a strong rally in late July and early August. The rally eventually peaked on August 8 at 0.8625 and started moving lower. 

The pair formed a falling channel which reached a new low of around 0.8507 on Monday. This was also the midpoint of the prior move – or the 0.5 Fibonacci retracement level of the rally from the July 17 low. 

EUR/GBP 4-hour Chart 

The move down from the August 8 high has extended quite far and established a new sequence of declining peaks and troughs. This could indicate the trend has changed to a short-term downtrend. If so – and given “the trend is your friend” – the odds would now favor shorts over longs.

However, the rally from the July 17 low was quite a bit steeper than the falling channel, indicating bullish conviction has been stronger than bearish conviction. If so, then this might mean that the decline since the August 8 high is in fact merely a correction of the previous rally, and not a new short-term downtrend. If so, the climate still favors longs over shorts. 

Either interpretation is valid so the direction of the short-term trend remains doubtful. It would require a strong bullish reversal candlestick pattern to suggest the possibly still-intact uptrend was resuming. An upside breakout from the falling channel could also be a sign of the resumption of the bullish trend. 

Likewise, it is also possible the bearish channel could continue falling. In such a scenario, EUR/GBP might next fall to the 0.618 Fibonacci retracement ratio at 0.8478. The 200-period Simple Moving Average (SMA) is also nearby and could provide a downside target for price. ¡

The long-term trend (weekly chart) is still bearish whilst the medium-term trend is bullish, further confusing the technical picture.