- EUR / GBP makes a modest recovery after an initial dip to new yearly lows.
- The formation of a rectangle could be seen as a bearish consolidation phase.
- A move past the 0.8460 resistance is needed to negate the negative bias.
The EUR / GBP cross has reversed an initial slide to new yearly lows and is trading modest gains on the day around the 0.8430-35 region.
The relative poor performance of the British pound during the first half of the European session could be attributed to a profit taking in the GBP / USD pair amid a good rebound in demand for US dollars. That said, expectations of an imminent rate hike by the Bank of England later this year should act as a tailwind for the British pound and limit gains for the EUR / GBP cross.
Looking at the technical picture, the recent range price action witnessed since the beginning of this week constitutes the formation of a rectangle on short-term charts. Given the recent sharp rejection drop from the very important 200-day SMA, the rectangle could be classified as a bearish continuation phase amid slightly oversold conditions.
Meanwhile, the upper limit of the mentioned trading range, around the 0.8460 region, now coincides with the 200 hourly SMA. This should now act as a fundamental point for short-term investors. A sustained move above this region will suggest that the EUR / GBP has bottomed out in the short term and could trigger an aggressive short-hedging move amid the absence of a relevant fundamental catalyst.
The EUR / GBP cross could aim to regain the key psychological level of 0.8500. Recovery momentum could extend further towards the next relevant hurdle near the 0.8525-20 resistance zone. Some continuation buying will set the stage for a further short-term bullish move and lift the crossover towards the 0.8550 region on its way to the 0.8575-80 zone.
On the other hand, the 0.8420-15 region, or the lower limit of the weekly trading range, now appears to have emerged as strong immediate support. Bears should wait for sustained weakness below the mentioned support before opening new positions. The EUR / GBP cross could become vulnerable to break below the round level of 0.8400 and slide to the support zone of 0.8335.
EUR / GBP 1 hour chart
EUR / GBP technical levels
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