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by Charalambos Pissouros

EUR/GBP Stays in a Downtrend Mode

EUR/GBP traded lower yesterday, breaking below the support (now turned into resistance) barrier of 0.8840. That said, the slide was stopped by the 0.8785 level today and then the rate rebounded somewhat. Overall, the price structure remains of lower peaks and lower troughs below the downside resistance line drawn from the high of August 12th, and thus, we would consider the near-term picture to be negative, although the rate could continue correcting higher for a while more.

A clear move back above 0.8840 could signal that there is scope for more recovery, perhaps towards the 0.8890 or the 0.8905 barriers. Nevertheless, EUR/GBP would still be trading below the aforementioned downside line and thus, we would see decent chances for the bears to jump back into the action and push the rate down for another test near 0.8785. If, this time, they are not willing to hit the brakes near that zone, a break lower would confirm a forthcoming lower low and may extend the slide towards the 0.8725 zone, marked as a support by the low of May 21st.

Looking at our short-term oscillators, we see that the RSI rebounded from slightly above its 30 line, while the MACD, although below both its zero and trigger lines, shows signs that it could bottom as well. What’s more, there is positive divergence between both the indicators and the price action. All these signs suggest that the downtrend is losing some speed and corroborate our view for some further recovery before the next negative leg.

In order to start examining the case of a bullish reversal though, we would like to see a decisive move above the 0.9015 territory, which provided resistance on September 9th, while earlier, it acted as a support on August 27th and 30th. Such a move would also place the rate above the downside resistance line drawn from the high of August 12th and may initially set the stage for the 0.9095 area. Another break, above 0.9095, could encourage the bulls to put the 0.9145 level on their radars, which is near the high of September 3rd.

EUR/GBP 4-hour chart technical analysis


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