EURGBP was recently consolidating inside a rising wedge formation then recently broke to the upside, indicating that buyers are gaining strength. The chart pattern is approximately 400 pips tall so the resulting rally could last by the same number of pips, taking the pair up to the .8800 level.
The 100 SMA is above the 200 SMA so the path of least resistance is to the upside. In addition, the gap between the moving averages is widening so bullish momentum is present.
Stochastic recently dropped from the overbought zone to indicate a return in selling pressure, but the oscillator appears to be turning higher once more. If sellers try to regain control, EURGBP could pull back to the broken wedge resistance around .8400 before heading further north. Stronger bearish pressure could lead to a move below the wedge and a corresponding selloff.
The UK property market is showing signs of financial pain, as three of the largest funds announced that they would be preventing clients from making withdrawals. This comes after plenty of property investors started liquidating their property holdings after the Brexit decision as prices have been tanking.
A huge number of banks and small businesses are exposed to the property market with their capital buffers and loans so a great deal of financial stress could cause contagion and panic. However, the BOE assured that they’ve conducted stress tests and that the UK banking sector can weather these risks.
UK services PMI came in weaker than expected at 52.3 from the previous 53.5 figure, indicating a weaker pace of industry growth. ECB Governor Draghi has a testimony lined up today and any confirmation about increasing their QE program or lowering deposit rates further could weigh on this pair.
By Kate Curtis from Trader’s Way