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Bank of England Leaves Rates Unchanged at 5.25% - Vote 5-4

EUR/GBP Technical Analysis: Waiting to Enter Short Trade

EUR/GBP Technical Analysis: Waiting to Enter Short Trade

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Talking Points:

  • EUR/GBP Technical Strategy: Flat
  • Technical Positioning Continues to Hint Euro Top vs. British Pound Taking Shape
  • Absence of Discrete Reversal Signal, Looming Event Risk Argue Against Short Trade

Euro technical positioning continues to warn of a possible top being formed against the British Pound as negative RSI divergence warns of ebbing upside momentum. Prices narrowly overturned bearish cues noted late last week but the case for a downside reversal has yet to be invalidated in earnest.

A reversal below the 23.6% Fibonacci expansion at 0.7181 opens the door for a challenge of the 38.2% level at 0.7106. Alternatively, a break above the December 8 high at 0.7278 on a daily closing basis paves the way for a test of falling trend line resistance set from August 2013, now at 0.7396.

The long-term EUR/GBP trend continues to favor the downside. In the near term however, the absence of a clear-cut bearish reversal signal hints pulling the trigger on a short trade is premature. Furthermore, a strong inverse correlation between the pair and the S&P 500 warns rally may transpire if risk aversion breaks out following the FOMC policy announcement. With that in mind, we will remain flat for now.

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