EURGBP Channel Retest (Sep 12, 2016)

EURGBP recently broke below its ascending channel support visible on the 4-hour time frame then dipped to a low of .8335. From there, price showed signs of a pullback and applying the Fib tool on the latest swing high and low shows that the 38.2% retracement level lines up with the broken channel support.

A higher pullback could last until the 50% Fib area, which is close to the dynamic inflection points at the moving averages. The 100 SMA is just crossing below the longer-term 200 SMA so the path of least resistance is to the downside and the selloff could resume sooner or later. 

Stochastic is also on the move down, which confirms that bearish pressure is getting stronger. This could take EURGBP back down to the previous lows or much lower to the .8300 major psychological level. 

There are plenty of top-tier U.K. reports lined up for this week which could bring a lot of volatility for this pair. UK CPI readings are due Tuesday while jobs figures are lined up for Wednesday. On Thursday, the UK retail sales report is due ahead of the BOE monetary policy statement.  

Dovish remarks are expected from other BOE policymakers especially since Governor Carney sounded less upbeat than usual in his Inflation Report hearings last week. The UK central bank head highlighted the potential risks from the Brexit and added that he would welcome additional stimulus if necessary. 

There are no major reports due from the euro zone, although the shared currency could continue to enjoy its relief rally after the ECB refrained from adding stimulus in last week’s policy decision. The central bank also upgraded its growth forecast for the year while keeping its inflation estimate unchanged.

UK CPI readings are expected to show more gains while the jobs report could show a slight increase in claimants. UK retail sales are expected to fall by 0.4% after rising by 1.4% in the previous month. ECB head Draghi has a speech scheduled tomorrow ahead of the release of the ZEW economic sentiment figures from Germany and the region.  

By Kate Curtis from Trader’s Way