EURGBP Bearish Momentum (Sept 22, 2015)

EURGBP made a break below its short-term consolidation, indicating a buildup in bearish pressure and a potential selloff to the bottom of the longer-term range visible on the 4-hour chart. Price seems to have broken below the neckline of a triple top formation, which was more than 100 pips in height, so the resulting selloff could last by at least the same number of pips.

 

The next support is around the .7000-.7050 psychological levels, which have kept losses in check back in June and July. Stochastic and RSI are still on the move down, indicating that euro bears are in control of price action, but the indicators are already in the oversold region.

 

A return in buying momentum could lead to another test of the range resistance near the .7400 major psychological mark. The 100 SMA is still above the 200 SMA, which suggests that the path of least resistance is to the upside and that a break past the top of the range might still be possible.

 

Event risks for this trade setup include the release of euro zone PMI readings tomorrow. France is expected to show small improvements for both manufacturing and services industries while Germany could reflect slight declines in activity, resulting to an overall dip for the region’s PMI figures.

 

Aside from that, ECB Governor Mario Draghi is set to give a testimony around the start of the US trading session, possibly spurring strong moves across euro pairs. Keep in mind that the ECB has already expressed its willingness to ease further if necessary, before even getting wind of the downgrades in the final CPI readings for August. With that, additional dovish remarks from the ECB head could mean more losses for EURGBP. 

 

As for the pound, there are no major reports up for release this week, although some BOE MPC members are set to give testimonies. The BOE is still on track to hike interest rates possibly by next year, as indicated in the latest monetary policy statement and meeting minutes.

 

By Kate Curtis from Trader’s Way