EUR/GBP traded lower on Friday, breaking below the support (now turned into resistance) of 0.8430, marked by the low of the day before. The slide came after the rate hit resistance near the 0.8470 barrier, near the lower end of the downside channel that contained the price action from October 24th until December 4th. Bearing in mind that the rate is trading below the lower bound of that channel, we would consider the near-term outlook to be negative for now.
We believe that the bears may soon challenge the 0.8380 zone, marked as a support by the low of May 10th, 2017. The rate could rebound somewhat from there, but as long as it stays below the channel’s lower bound and the 0.8470 zone, we would see decent chances for the bears to take the reins again. If the forthcoming negative leg brings the rate below 0.8380, we could then see declines towards the low of April 19th, 2017, at around 0.8335.
Taking a look at our short-term oscillators, we see that the RSI lies below 30, but it has just ticked up, while the MACD is negative, slightly below its trigger line, but points sideways. It could also turn up. Both indicators detect negative momentum, but the bottoming signs add to our view that a minor corrective bounce may be in the works soon.
On the upside, we would like to see a decisive move above 0.8585 before we start examining whether the short-term outlook has turned positive. Such a move would confirm the break above the upper bound of the pre-mentioned channel and may pave the way towards the 0.8630 or 0.8660 zones. Another break higher, above 0.8660, may carry more bullish implications, perhaps setting the stage towards the 0.8715 barrier, marked by the high of October 16th.
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