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Talking Points:
- EUR/GBP Technical Strategy: Flat
- Bearish Evening Star Candlestick Pattern Hints at Euro Losses vs. British Pound
- Firming Inverse EUR/GBP vs. S&P 500 Correlation Warns Against Short Trade
The Euro put in a bearish Evening Star candlestick pattern, hinting that a turn lower against the British Pound may be looming ahead. Prices recovered as expected having found interim support below the 0.70last month but the dominant down trend set from August 2013 remains intact, painting the move as corrective.
Near-term support is at 0.7158, the 23.6% Fibonacci expansion, with a break below that on a daily closing basis paving the way for a test of the 38.2% level at 0.7084. Alternatively, a push above the December 9 high at 0.7278 opens the door for a challenge of falling trend line resistance at 0.7403.
Establishing a short position is a tempting proposition from a purely technical perspective. A firming inverse correlation between EUR/GBP and the S&P 500 sets off alarm bells however. Indeed, the trade may turn out to be disastrous in the plausible event of risk aversion following next week’s FOMC policy announcement. With that in mind, we will tactically opt to stand aside.
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