EURGBP Downtrend Correction (May 23, 2016)

EURGBP recently made a break below the head and shoulders neckline support then dipped to a low of .7650. Price is showing signs of a pullback from the breakout move, possibly retesting the broken neckline around .7750-.7800. 

Applying the Fib tool on the latest swing high and low shows that the 38.2% level coincides with the broken support, which might now keep gains in check. A higher correction could last until the 61.8% Fib closer to the .7800 major psychological mark and the descending trend line connecting the latest highs on the 4-hour time frame. 

This is also near the 100 SMA dynamic inflection point. This short-term moving average is below the longer-term 200 SMA, indicating that the path of least resistance is to the downside. Stochastic and RSI are both on the move up so buyers are in control for now, but sellers could return once these oscillators reach the overbought levels. 

Event risks for this setup include any updates on the Brexit polls, as a widening margin in favor of those voting to stay in the EU could mean more gains for the pound. The BOE Inflation Report is lined up tomorrow and reassuring remarks from policymakers could keep the pound supported as well. 

As for the euro, a number of medium-tier reports are lined up from its top economies, providing hints of the entire region’s economic performance. Flash manufacturing and services PMIs are due from France and Germany today.


Later on in the week, the UK will print its revised Q1 GDP reading while the euro zone will have its ZEW economic sentiment index and German Ifo business climate reading released. 

By Kate Curtis from Trader’s Way