Day trade
Trade view / 07 July 2016 at 7:40 GMT

EURGBP signals move to the downside

Analyst / PIA First
United Kingdom
Instrument: EURGBP
Price target:
Market price:

USD Index – The morning rally was reversed at the 261.8% extension level of 96.64 (from 95.39-95.87). Although we have not seen a full retest of the breakout level, dollar buyers are starting to re-emerge.

The only USD-based currency pair that looks to buck this trend is GBPUSD. The pair is looking exhausted and, with higher lows, is possibly forming a bullish ascending-triangle pattern.

For this reason, and others, our focus now turns to EURGBP. 

USD Index - pullback to re-test
USD Index
Source: Saxo Bank 

The EURGBP monthly chart has clearly broken the corrective channel formation to the upside. We are trading at the highest level in 33 months.

Signals are now overbought and there is scope for a correction lower. Prime support is at 0.8125. This is a retest of the breakout and an area that has been pivotal since 2008. 

Monthly EURGBP breaking through corrective channel formation
Source: Saxo Bank
The weekly chart shows a break through the trend of lower highs and the 261.8% extension of 0.8400 (from 0.6929-0.7491). We need to see a weekly close below 0.8450 to highlight a false breakout and the start of the corrective formation lower. 

Weekly chart indicating possible downside move
 Source: Saxo Bank

The daily chart shows a break in the expanding wedge to the upside. On a normal wedge breakout (closing wedge), we target the start of the formation.

Taking the widest part of the wedge and extended from the breakout gives us a measured move of 0.8583 which has been achieved. Yesterday we posted a DeMark 9 count. This highlights that we should see at least a correction lower within the next four days. We are at overbought extremes. 

Overbought extremes on the daily EURGBP chart
 Source: Saxo Bank

The four-hour timeframe highlights an Ending-wedge formation. A break of 0.8475 would confirm the breakout. The target level is the start of the wedge at 0.8000.

A break of 0.8475 could usher in move towards 0.800
 Source: Saxo Bank

The one-hour chart is just stalling at the Ichimoku Cloud. Bespoke support is seen at 0.8513.

With this being close to the previous low, we could bounce here and produce a descending-triangle formation.

One-hour EURGBP stalling at Ichimoku Cloud
 Source: Saxo Bank

Intraday targets – a break of 0.8507 and we could see an impulsive move lower as GBP shorts reverse towards the four-hour cloud and the 261.8% extension level at 0.8314. 

Intraday targets could be fuelled by impulsive move lower
 Source: Saxo Bank

Management and risk description


Entry: short at 0.8554. Selling again at 0.8666 or a break of 0.8507.

Stop: medium- and short-term call so wider stop. 50 pips combined.

Target: short term (2-3 sessions) is 0.8320. Medium term looking for 0.8125 and possibly the start of the wedge at 0.8000.

— Edited by Martin O'Rourke

Non-independent investment research disclaimer applies. Read more


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