Did EUR/GBP Just Top?
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- EURGBP responds to confluence resistance- Risk for larger correction with a break sub-8788
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Technical Outlook:EURGBP responded to confluence resistance earlier today at 8944 where the 76.4% retracement of the late-October decline converges on slope resistance. The pullback is now testing initial support at the January highs at 8852. Bearish divergence into the median-line suggests the risks remains for a larger set-back here with a break lower targeting a more significant support confluence at 8788/95.
Notes: A closer look at the 120min chart highlights a near-term descending pitchfork formation extending off the recent highs with the median-line converging on basic trendline support and the weekly open at 8845/52. While it’s still too early to heavily rely on this slope, I’ll be look for initial resistance back at the 50-line just shy of 8900 with a break lower targeting 8815/22 and 8795.
We’re likely to get some relief on a dip into the highlighted support pocket but from a trading standpoint, I’ll favor fading strength sub-8900 with broader bearish invalidation steady at 8944- a breach above this threshold would shift the focus back to the long-side with such a scenario targeting subsequent resistance objectives at 9002 & 9049.
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- A summary of IG Client Sentiment shows traders are net-short EUR/GBP- the ratio stands at -1.64 (37.9% of traders are long) - bullish reading
- Retail has been net-short since May 16th; price has moved 5% higher since then
- Long positions are 2.2% lower than yesterday and 14.2% lower from last week
- Short positions are 13.0% lower than yesterday but 5.2% higher from last week
- We typically take a contrarian view to crowd sentiment,and the fact traders are net-short suggests EUR/GBP prices may continue to rise. That said, positioning is less net-short than yesterday but more net-short compared with last week and the recent changes in sentiment gives us a further mixed trading bias.
- Bottom line: look for a build in long positioning / trimming in short exposure to further support the reversal scenario as price responds to resistance.
What to look for in retail positioning - Click here to learn more about sentiment!
Relevant Data Releases
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- Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at firstname.lastname@example.org.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.