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EURGBP Eyes Bull Flag Breakout Toward 0.75/7650

EURGBP Eyes Bull Flag Breakout Toward 0.75/7650

Tyler Yell, CMT, Currency Strategist


Bias: Bullish EURGBP towards May 7th High

Point to Establish Long Exposure:Daily Close > 0.7350/0.7400 Zone

Swing Target 1: 61.8% Fib Ext. & May 7th High of 0.7485

Swing Target 2: 100% Fib Ext. / Bull Flag Target at 0.76301.92538

Swing Target 3: 1.618% Fib Ext. Target at 0.78805

Invalidation Level:0.7230 (Flat Wave ‘iv’ of larger: Elliott Wave Based)

This Week’s Price Action Recap:

EURGBP has come into short-term resistance along a top of a bull-flag. Answering the question, ‘what is the market not doing’ shows that we’re not seeing an aggressive bid in cable or a willingness to aggressively sell the EUR vs. anything other than the USD. Additionally, the recent sideway move seems to favor a resumption of the two recent aggressive pushes higher with very weak counter-trend moves. This week counter-trend pushes turns our attention to RSI (5) on the 4h where a breakout would likely align with an aggressive move higher.

This Week’s News & Sentiment Recap:

Recently, ECB’s Mario Draghi of the European Central Bank noted that continued quantitative easing may be a necessity given the inflation pressures. Surprising to many, this has had little effect on EUR in the reason may have to do with the upcoming disappointment from FOMC. On September 17, should the Federal Reserve decide not to hike rates and make the likely decision to allow for one hike this year contingent on and improving global economy, dollar longs could unwind which may see a natural flow into EUR all the while casting an unfavorable shadow on the Bank of England.

Looking at a tool called the Economic Surprise Index from Citi, the euro zone and surrounding economies of Sweden and Switzerland are consistently near the top of the global scale as their economic prints have recently beat economist expectations on a continual basis. This morning, euro zone industrial production shattered expectations rising 1.9% year-over-year first expectations of 0.7%.

Industrial production measures the volume change of output of the manufacturing and energy sector. The industrial sector contributes to only 25% of the Euro-zone GDP however, most variations in GDP come from the industrial sector, whereas other sectors that contribute far more to national output historically have been very consistent regardless of economic cycles.

Lastly, the DailyFX Speculative Sentiment Index recently shows a rating of -3.7 marking one of the more extreme readingsof our SSI tool. We use our SSI tool as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that EURGBP may continue higher. -T.L.Y.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.