EURGBP Range Retracement (Feb 4, 2016)

EURGBP recently broke to the upside of its long-term range pattern visible on the daily time frame then zoomed up to the .7750 minor psychological level before showing signs of a pullback. Using the Fib tool on the swing high and low shows that the 38.2% to 50% levels line up with the broken range resistance at .7400-.7450. 

The 100 SMA is closer to the 61.8% Fib and this might act as a dynamic support area as well. In addition, this short-term moving average is above the longer-term 200 SMA, indicating that the uptrend is likely to carry on. If so, EURGBP could make another test of the highs at .7750 and possibly move further north until the .8000 levels. 

Stochastic is still on the way down, which means that sellers are in control of price action and that further losses are possible. RSI is also on the move down, confirming that a correction is taking place. Once these oscillators reach the oversold area, a bounce could take place. 

Event risks for this setup include the BOE events in today’s London trading session. The UK central bank will announce its monetary policy decision and no major changes are expected for now. Traders are likely to pay closer attention to the minutes of their meeting, as this would indicate if any member shifted to a more dovish bias. 

In addition, the BOE Inflation Report is set to reflect any revisions in growth and inflation forecasts, with downgrades likely to weigh on pound price action. BOE Governor Carney has previously stated that they have no time line for hiking rates just yet, given the external risks from China and falling commodity prices. The possibility of a Brexit is also weighing on their decision.

As for the euro, the ECB is also expected to be more dovish in their next policy statement in March. ECB Governor Draghi has hinted that they might announce an actual expansion of their easing program then, something that might limit the euro’s gains. 

By Kate Curtis from Trader’s Way