Yesterday, EUR/GBP continued its bearish trend and broke below the psychological .7000 handle. After making a fresh new 7-year low, the downward move found support in New York from the .6962 region.
Bearish momentum accelerated at the start of this trading week once price closed below the 50-Day SMA. The EUR/GBP daily chart shown above shows that technical support may come the lower boundary of the bearish channel shown in red. The next 24 hours will be critical and if price is able to recapture the .7000 handle, we could see a bullish bounce support a move towards .7150.
If the downward trend resumes, major support will come from the .6850 region. It is around that area that we could see the formation of a bullish butterfly pattern. Point D of the potential bullish reversal is targeted by the 161.8% Fibonacci expansion level of both the X to A and B to C legs. If price breaks below the noted support level, further selling pressure may target .6723.
The trade: Sell EURGBP at .7050 with a stop loss at .7150 and a take profit at .6850. The Risk/Reward Ratio is around 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading