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Euro Forecast: EUR/GBP Broke Month-Long Range. What Next?

Euro Forecast: EUR/GBP Broke Month-Long Range. What Next?

Dimitri Zabelin, Analyst

Euro Outlook, EUR/GBP, Brexit – TALKING POINTS

  • EUR/GBP finally broke through 0.8597-0.8642 congestive range
  • Downside break has exposed pair to key support level at 0.8491
  • But technical cues are signaling upside momentum is gaining

Learn how to use political-risk analysis in your trading strategy!

After trading between 0.8597-0.8642 since mid-October, EUR/GBP appears to have finally committed to a directional preference after the pair had a downside breakout that was met with follow-through. Looking ahead, traders will be eyeing support at 0.8491. In the meantime, an accelerated selloff may ensue now that a major digestive zone appears to have been finally broken.

EUR/GBP – Daily Chart

Chart showing EUR/GBP

EUR/GBP chart created using TradingView

Having said that, positive RSI divergence is signaling that downside momentum is fading despite EUR/GBP’s decline. Seeing how this manifests will be crucial to watch because of the implications it has for the pair’s trajectory. Now, if the pair hits 0.8491 and rebounds, EUR/GBP may find itself stuck between that level and the lower bound of the prior congestive zone it just breached.

Conversely, if the pair’s descent continues and ends up puncturing 0.8491 with follow-through, this could mark a tectonic shift in the pair’s trajectory. In order to understand the magnitude of such a price move, traders may benefit from taking a wider perspective.

Looking at a weekly chart shows how a range between 0.8300 and 0.8477 has served as support ever since the Brexit Referendum in 2016. EUR/GBP is only a little over one percent away from testing the upper range of the multi-layered floor. Therefore, even testing this range has significant technical implications because it is in essence flirting with an over three-year support zone.

EUR/GBP – Weekly Chart

Euro Forecast: EUR/GBP Broke Month-Long Range. What Next?

EUR/GBP chart created using TradingView

However, despite this being a technical piece, a fundamental factor that could quickly reverse or accelerate the downtrend needs to be disclosed. It should be noted that political volatility relating to Brexit and the UK general election could skew the technical setup because of the significant impact the EU-UK divorce has on the latter’s economy and by extent the British Pound.

To learn more about how politics impacts markets, see my guide on it here.

EUR/GBP TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

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

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