Early in Asia, EUR/GBP continued to trade near a four-week low and is tentatively respecting the .7100 handle. Bearish momentum has been firmly in place after price formed a double-top pattern after respecting the .7385 level. This recent selloff has accelerated as Greece struggles to reach a deal with its creditors and economic activity continues improve in the United Kingdom.
If UK wage growth continues to rise, we could see the Bank of England raise interest rates. If they are the next major central bank to raise rates, we could see sterling appreciate quickly and eventually target the .6750 region.
The EUR/GBP chart shows that if the bearish trend momentum strengthens, price could make fresh 2015 lows. With price trending below all three key SMAs, downward pressure could accelerate on the break of the .7050 level. Initial support could come from the .7000 price barrier. Deeper support is targeted by the .6885, which is the 127.2% Fibonacci expansion level of the March low to May high move.
If we do see a bullish rebound, key resistance will come from the 50-day SMA, which is currently trading at .7215.
The trade: Sell EURGBP at .7120 with a stop loss at .7160 and a take profit at .7005.
The Risk/Reward Ratio is around 1: 3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading