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EUR/GBP Technical Analysis: Short Trade Setup Established

EUR/GBP Technical Analysis: Short Trade Setup Established

Ilya Spivak,

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Talking Points:

  • EUR/GBP Technical Strategy: Pending short at 0.7917
  • Euro breaks key support line, hinting at down trend resumption vs. Pound
  • Corrective rebound above 0.79 figure sought for entry into short position

The Euro declined against the British Pound as expected after prices produced a Bearish Engulfing candlestick pattern below the 0.82 figure. Prices have now broken trend line support set from early February, hinting the dominant long-term down trend may be resuming.

From here, a break below the 23.6% Fibonacci retracement at 0.7849 on a daily closing basis opens the door for a challenge of the 0.7683-0.7703 area (horizontal pivot, 38.2% level). Alternatively, a reversal above the intersection of trend line support-turned-resistance and the 14.6% Fib at 0.7951 clears the way for a retest of the April 7 high at 0.8117.

Entering short in line with our 2016 fundamental forecast is a tempting proposition, but prices are to close to support to justify taking a trade at current levels. Rather, we will establish an entry order to sell EUR/GBP at 0.7917. If triggered, the trade will initially target 0.7849 with a stop-loss activated on a daily close above 0.7951.

Where is the Euro going in the second quarter? See our forecast here !

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