EUR/GBP surged on Friday after the 1st estimate of the UK GDP showed that the economy slowed much more than anticipated in Q1. The rally continued on Monday as well with the pair finding resistance near the 0.8825 barrier during the European morning. Following the spike on the 18th of April, the rate returned back within the medium-term downside channel that’s been in place since late September. What’s more, that surge brought the rate above the short-term downtrend line drawn from the peak of the 12th of March. As such, having these technical moves in mind, and also that the rally that was triggered on Friday confirmed a forthcoming higher high on the 4-hour chart, we see the case for EUR/GBP to continue trading north within the broader downside channel.
A move above 0.8825 could bring into play the next resistance of 0.8840, defined by the peak of the 16th of March. However, we believe that a break above that level is needed to set the stage for more upside extensions. Such a break could pave the way for our next resistance of 0.8875. If that level does not hold either, then the bulls may be encouraged to drive the battle towards the 0.8900 zone.
Looking at our short-term oscillators, we see that the MACD stands above both its zero and trigger lines, pointing north. However, the RSI, although it poked its nose slightly above 70, it shows signs of flattening near that line. This, combined with the fact that the latest rally appears overstretched, make us cautious about a corrective retreat occurring before, and if, the bulls decide to shoot again.
A clear dip below 0.8790 could confirm the case for a retreat and may initially aim for the 0.8750 support zone. If that zone does not prove strong enough to prevent the rate from falling further, then we may see a test near the 0.8710 territory or the new upside support line taken from the low of the 17th of April.
