EURGBP Downward Chanel Continues

EURGBP Downward Chanel Continues

By: Darryl Frankfort | Where To Trade | On:29-10-2014 06:40
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Key Highlights

  • Major support at 0.7750 26 months low
  • Major support at the last months high at 0.806
  • Downward channel on the daily, weekly charts
  • Multi timeframe Technical analysis reveals long term bearish outlook for  EURGBP

 

EURGBP

The EURGBP has found resistance at the 0.80 major level and prices have fallen over 100 pips. The bullish spike was the result of a price rejection at the major support level near the two year low. The Pair has been on  bearish slide, consistently making lower lows for the last 15 month. This down trend has fallen into a clear channel visible on the daily and weekly time frames.

Last month, the EURGBP reached near the trough of July of 2012 at 0.7751 before finding significant buying pressures from the level. From last month’s low at 0.7766 the prices have been rejected nearly 300 pips to the upside in three weeks. This was despite the 100 pip strengthening of the GBP against the dollar within that duration.  The upward rally hit the upper trend line of the downward channel at 0.804  and has since then fallen nearly 200 pips we are now about 130 pips above the 26 months low at 0.77.

We anticipate to see major whiplash moves at this level as the down ward channel and the larger price wave clash. We should notice that the fundamentals outlook for the EUR looks bearish as the Euro zone struggles to get its economy back to normal growth levels. In the meantime the fundamental outlook for the GBP is bullish as the UK economy has registered moderate growth figures and the MPC looks to normalize its monetary policy. These outlooks seem to align with the expectation that the channel will break below the supports and see the pair slide lower.

 

Technical indicators

Monthly chart

From the monthly chart, we will notice that both the 14 period and the 21 period moving averages are trading well above the prices. This gives us a bearish indication that the pairs bearish momentum will persists. We should also notice that the two moving averages have made a bearish cross as the 21 period moving average is now above the 14 period moving average. This is a strong bearish sign for the pair.

The stochastic, which has been in the oversold territory for the last one year, is currently reading 14.80. The RSI in the other hand indicates that we are at neutral territory with a reading of 38.71.

 

Where To Trade - EURGBP Monthly

 

Weekly chart

From the weekly chart, the 21 period and 14 period moving averages have maintained their bearish cross and are both trading above the prices. This is a bearish signal, however, we must notice that both of the moving averages have touched the prices, this signal serve as s potential bullish warning in the short term.

The MACD has been making lower lows along with the prices; this is a trend continuation signal so prices should move lower. The RSI and the Stochastic are both indicating that we are at neutral conditions with a reading of42.67 and 47.92 respectively

 

Where To Trade - EUR/GBP Weekly

 

Wrap up

The EURGBP has found price rejection at a major support level. We have seen that the MACD on the weekly chart shows that down trend will continue. On the larger time frames the moving averages are trading well above the prices. Under such conditions we can maintain a long term bearish bias on the pair and place short entry orders 100 pips below the current major support.

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