Article / 20 May 2016 at 11:30 GMT

Sterling pounds the euro

Technical Analyst / Saxo Bank
  • EURGBP breaks neckline
  • Overall trend still bearish
  • RSI could signal breakout

The pound is gaining ground as Brexit forecasters project a "Remain" victory. Photo: iStock

By Kim Cramer Larsson

Contrary to GBPUSD , which broke the neckline on its shoulder-head-shoulder pattern a few weeks ago, EURGBP has just posted the same formation Wednesday. 

After the neckline break, EURGBP immediately dropped to the 38.2 retracement level at around 0.7682 where it is currently trading. I would expect the cross to bounce a bit as it tries to move back up towards the neckline and maybe test it. 

The overall trend, however, is bearish and the next support level would be around 0.75 where the 200-day moving average offers some support. 

A drop to the 61.8 retracement of the November-through-April bullish move is not unlikely over the next few weeks, but if we look at the weekly chart we can see that 0.75 seems to be a tipping point for both bulls and bears.  

There is no divergence on the RSI and MACD indicators and the former seems to be drawing a falling wedge-like pattern where one should keep an eye on a breakout. Such a move could be an early warning for a direction change .  
EURGBP daily

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Source: Saxo Bank

Source: Saxo Bank

— Edited by Michael McKenna

Kim Cramer Larsson is a technical analyst at Saxo Bank


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