EURGBP Head and Shoulders (May 17, 2016)

EURGBP could be in for a longer-term selloff, as a head and shoulders pattern is being completed on the pair’s daily time frame. Price is on its way to test the neckline around the .7750 minor psychological support and a break lower could confirm the downtrend.

 

The 100 SMA is still above the 200 SMA and is close to the neckline, which might still prove to be a challenge for sellers to break. The gap between the moving averages has been widening so bullish pressure is still building up. 

Meanwhile, stochastic is turning lower once more, indicating that bears are trying to regain control. RSI is also heading down so EURGBP could follow suit. The head and shoulders pattern is approximately 500 pips tall so the resulting breakdown could last by the same amount.

There are plenty of top-tier releases from the UK this week, likely spurring additional volatility for this pair. The UK CPI is up for release today and a 0.5% headline figure is eyed. The core version of the report could also hold steady at 1.5%. 

Tomorrow the UK jobs report is due and a 4.0K increase in claimants is expected. Meanwhile, the average earnings index or indicator of wage growth could slow from 1.8% to 1.7% for the three-month period ending in March. UK retail sales data is due on Friday and a 0.6% rebound is expected.

As for the euro, the event risks include the release of the ECB meeting minutes and the final CPI readings. Downgrades and dovish remarks could put more weight on the euro, pushing EURGBP to test the neckline support or break lower.

By Kate Curtis from Trader’s Way