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Today’s Trading Edge: EUR/GBP – Downward Pressure May Target .7500 if Double-Bottom Pattern is Invalidated

Posted by Edward Moya on Sep 25, 2014 11:21:00 AM

WWM EURGBP SEP 25 2014

EUR/GBP fell 33 pips to .7784, the lowest level since the summer of 2012.  The decline is supported by the difference of the BOE interest rate outlook to the ECB's one.  Today, BOE governor Mark Carney explained that rate increases should be expected in the future.  We may see a tightening BOE if we do not see salary raises coincide with rising productivity.  The outlook for the ECB remains dovish as officials continue to step up their efforts to stimulate the economy.  If we continue to see dismal economic data from the region, expectations will grow for the bank to buy asset-backed securities and covered bonds.  If that happens, the euro is expected to have a major selloff.  

Currently on the EUR/GBP monthly chart, price is displaying the completion of a bullish Gartley pattern, which is followed by a significant selloff that has hit our initial take profit target of .7805 (from my August 7th post).  The slide is in now tentatively displaying a potential double-bottom pattern that may be invalidated if we see a daily close below .7748 within the next few trading days.  The daily chart highlights the recent weakness that has resumed once we had price break below the 50-day SMA.  Major support will come from the .7500 area, which could also display the potential formation of a bullish butterfly pattern.  If the double-bottom pattern is respected and bullishness persists for the next 24 hours, strong resistance may come from the .7900 handle. 

The trade: Sell EUR/GBP at .7860, with a stop loss at .7910 and a take profit at .7660.  The Risk/Reward Ratio is slightly better than 1: 4

Edward J. Moya

Technical Strategist

WorldWideMarkets Online Trading

Topics: EURGBP, U.K. Economy, U.K. Inflation, Central Bank, Central Bank Policy, 10-year bond, U.K. Pound

 

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