After making a high of .8768 on August 1, 2013, EUR/GBP has provided one of the strongest bearish trends of euro weakness. Ten out of the last fourteen months have been bearish and fundamentals could support further downside as the European Central Bank(ECB) prepares to ease some more and the Bank of England (BOE) awaits to see if the economic data continues to improves in the United Kingdom. The outlook for the pound has improved since Scotland did not pass the referendum to secede the UK two weeks ago. Inflation is not yet a concern for the BOE and employment numbers remain positive.
Price action on the EUR/GBP weekly chart shows that bearish channel that started last summer shows that we could see a slight bounce before seeing downward pressure resume. The start of the trading week has produced a slight pause so far on euro weakness and traders should not be surprised if we see a slight rebound here. Immediate support comes from the .7784 low made last Thursday. Major resistance will come from the 200-day SMA which currently resides around the .8124 zone. My downward target of .7500 also coincides with a potential bullish Gartley pattern on the monthly chart. If this pattern is valid, we could see that key level hold.
The trade: Sell EURGBP at .7875 with a stop loss at .7925 and a take profit at .7775. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading