The EUR/GBP plunge occurs after a week-long trading range consolidation and within a strong longert-term bearish trend. The currency pair has dropped off considerably over the past two years and is tentatively respecting the .70 handle.
The 4-hour EURGBP chart displays that this morning’s slide has tentatively formed an M-shaped pattern. This reversal pattern is currently identifying a potential rebound at point D. This level is confirmed with by the 70.7% Fibonacci retracement of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. Since the last candle is a long-bodied one, we will ignore any attempt at trading for a noticeable bounce. Today’s strategy focuses on fading any rally.
If we continue to see the fresh session lows, the .7100 handle should provide significant support. To the upside, the .7190 level may provide key resistance and an optimal short entry level. Critical resistance may come from the 50-day SMA, which is trading at the .7242 level.
The trade: Sell EUR/GBP at .7190, with a stop loss at .7240 and a take profit at .7010. The Risk/Reward Ratio is just under 1: 4
Edward J. Moya
Senior Market Strategist