EURGBP Long-Term Area of Interest (May 30, 2016)

EURGBP has been selling off recently but it appears to be stalling at a longer-term correction level. Zooming out to the daily time frame reveals that price is stalling at the 50% Fibonacci retracement level and might be due for a bounce. A larger correction could last until the 61.8% Fib level or .7400, which lines up with a former resistance level.

On this daily time frame, the 100 SMA is above the longer-term 200 SMA so the path of least resistance is still to the upside. In addition, stochastic has already reached the oversold area to indicate a possible return in buying pressure while RSI is also showing oversold conditions.

A bounce from the 50% or 61.8% Fib could take EURGBP back up to the previous highs at the .8100 major psychological mark or higher. On the other hand, a continued drop below the .7400 handle could push the pair down to the next support at .6950-.7000.

Event risks for this setup this week are the ECB rate statement and the UK PMI releases. No actual changes are expected from the ECB but the central bank could retain its dovish stance and discuss the risks of a Brexit, which might also push the pound around.

As for the UK PMI readings, improvements are expected from both the manufacturing and construction industries while no change in the services PMI might be seen. Stronger than expected data could keep the pound afloat, as this would reassure traders that the UK economy is stable ahead of the EU referendum in June 23.

Anti-Brexit remarks could also allow the pound to hold on to its gains, as these usually tip the scales in favor of staying in the EU for voters. Opinion polls could also influence pound price action in the next few weeks.

By Kate Curtis from Trader’s Way