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EUR/GBP Trend Remains Intact- Pair to Test Recent Range

EUR/GBP Trend Remains Intact- Pair to Test Recent Range

2011-08-08 20:05:00
Michael Boutros, Strategist
Share:
EURGBP_Trend_Remains_Intact-_Pair_to_Test_Recent_Range_body_Picture_2.png, EUR/GBP Trend Remains Intact- Pair to Test Recent Range

We continue to revisit the EUR/GBP as recent price action provides ideal entry for further downside moves. The pair failed a topside break at the 76.4% Fibonacci extension taken from the May 5th and July 1st crests at 0.8740 early in Asian trade with RSI sloping to the downside. With the situation in Europe continuing to deteriorate, we see further topside potential for the sterling to rise against the euro as the ECB now steps in to purchase periphery debt in an attempt to ease market tensions. Although it’s worth noting that slight divergence does favor the topside, the head and shoulder formation dating back to the May high is likely continue to see the pair lower and accordingly our bias remains weighted to the downside.

EURGBP_Trend_Remains_Intact-_Pair_to_Test_Recent_Range_body_Picture_3.png, EUR/GBP Trend Remains Intact- Pair to Test Recent Range

A 30min chart sees the pair continue to trade within a well defined descending channel dating back to July 26th noting strong topside resistance at former trendline support, now resistance, dating back to May 26th. Preferred short entry targets are held at the 50% Fibonacci extension taken from the July 1st and 26th crests at 0.8695 backed by 0.8720 and 0.8740. Support profit targets eyed at 8670, followed by the 61.58% extension at 0.8650 and 0.8625.

With a 2-hour average true range of just 31.72, profit targets on said scalp should be between 20-25pips depending on entry. Note that the scalp will not be active until a rebound off of resistance target 1 at 0.8695 or a confirmed break below support target 1 at 0.8670. Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.

Key Thresholds

A daily downward sloping RSI of 36.37 suggests risk to the pair remains to the downside after a strong rebound off of the 50-mark late last month. We reckon a breech above the topside limit which rests with trendline support dating back to May 26th, currently at 0.8750, negates the bearish bias on the trade with such a scenario eyeing topside break-targets at 0.8765 and 0.8780. Likewise a break below the bottom limit at 0.8625 risks further losses for the euro with downside targets eyed just above the 76.4% extension at the 0.86-handle.

Entry/Exit Targets

Timeframe

Level

Resistance 1 Target

30min

0.8695

Resistance 2 Target

30min

0.8720

Resistance 3 Target

30min

0.8740

Topside Limit

30min

0.8750

Topside Limit Break-Target

30min

0.8765

Support 1 Target

30min

0.8670

Support 2 Target

30min

0.8650

Bottom Limit

30min

0.8625

Bottom Limit Break-Target

30min

0.8600

Reference Values

Indicator

Timeframe

Level

Fibonacci Extension – 0%

1hour

0.8883

Fibonacci Extension – 23.6%

1hour

0.8794

Fibonacci Extension – 38.2%

1hour

0.8740

Fibonacci Extension – 50%

1hour

0.8695

Fibonacci Extension – 61.8%

1hour

0.8651

Fibonacci Extension – 76.4%

1hour

0.8651

Fibonacci Extension – 100%

1hour

0.8596

10-SMA

Daily

0.8737

20-SMA

Daily

0.8766

50-SMA

Daily

0.8841

100-SMA

Daily

0.8817

RSI

Daily

36.37

Average True Range (14)

2hour

31.72

Related Economic Data Releases

Event risk for the pair starts overnight, with German trade figures on tap. June trade balance is expected to ease to 14.0B down from a previous 14.8B, with both imports and exports seen contracting by 1.5% and 1.0% respectively. The data is followed by industrial and manufacturing production numbers out of the UK. Industrial production is expected to advance to 0.2% y/y, up from a previous contraction of 0.8%, while manufacturing is seen holding at 2.8% y/y. With the trade deficit seen slightly narrowing and German data expected to soften, risk for the pair remains to the downside.

Upcoming Events

Country

Date

GMT

Importance

Release

Expected

Prior

EC

8/9

6:00

MEDIUM

German Trade Balance (euros) (JUN)

14.0B

14.8B

EC

8/9

6:00

LOW

German Current Account (euros) (JUN)

11.0B

6.9B

EC

8/9

6:00

LOW

German Exports s.a. (MoM) (JUN)

-1.0%

4.3%

EC

8/9

6:00

LOW

German Imports s.a. (MoM) (JUN)

-1.5%

3.7%

GBP

8/9

8:30

LOW

Industrial Production (MoM) (JUN)

0.4%

0.9%

GBP

8/9

8:30

MEDIUM

Industrial Production (YoY) (JUN)

0.2%

-0.8%

GBP

8/9

8:30

LOW

Manufacturing Production (MoM) (JUN)

0.2%

1.8%

GBP

8/9

8:30

MEDIUM

Manufacturing Production (YoY) (JUN)

2.8%

2.8%

GBP

8/9

8:30

MEDIUM

Visible Trade Balance (Pounds) (JUN)

-8.100B

-8.478B

GBP

8/9

8:30

LOW

Trade Balance Non EU (Pounds) (JUN)

-4.800B

-5.109B

GBP

8/9

8:30

LOW

Total Trade Balance (Pounds) (JUN)

-3.600B

-4.060B

Written by Michael Boutros, Currency Analyst for DailyFX.com

To contact the author of this report or subscribe to their daily analysis, please send inquiries to:mboutros@dailyfx.com

You can also follow Michael on Twitter @MBForex for updates on this scalp and other trades.

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

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