EUR/GBP gapped down to start the trading week, but price fully recovered the initial drop and extended the rebound to the .7166 level. Price action is now settling around last week’s closing price of .7087.
The long-term downtrend returned strongly two weeks ago when price had a daily close below the 50-day SMA. Bearishness did break below the psychological .70 handle, but we may see a slowdown on pound strength. Over the past 90 days, sterling has outperformed against its major trading partners and we could see some profit taking occur around the .70 handle.
If market sentiment starts to believe that the Bank of England is getting closer to tightening monetary policy, sterling could remain one of the strongest currencies going into the summer.
Price action on the EUR/GBP 60-minute chart is displaying a potential path for downward pressure to target the .7050 level. It is around that area that we could see a potential bullish Gartley pattern signal a rebound that could see upside capped by the .7085 level with further resistance coming from the .7150 area. In the event, bullishness recaptures the .7200 handle and the 50-day SMA, critical resistance will come from the .7400-.7500 zone.
The trade: Sell EUR/GBP at .7095, with a stop loss at .7135 and a take profit at .7015. The Risk/Reward Ratio is 1: 2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading