Drops to week-long lows, eyeing descending triangle support

• EUR / GBP added to the losses overnight and remained depressed for the second day in a row.
• Weakness below the horizontal support at 0.8560 will confirm a breakout of the descending triangle.
• Only a sustained move past the 0.8640-45 region will negate the short-term bearish outlook.

The crossing EUR/GBP extended the previous day’s rejection drop from short-term downtrend line resistance and witnessed selling for the second consecutive session on Friday. The bearish trajectory dragged the cross to one-week lows, around the 0.8570 region during the middle of the European session.

The next relevant support is pegged near the horizontal zone of 0.8560 tested earlier this month. This, together with the aforementioned trend line, constitutes the formation of a descending triangle on the daily chart. A convincing breakout below will set the stage for a further short-term depreciation move.

Meanwhile, technical indicators on the daily chart remain in negative territory and support prospects for an eventual bearish collapse. With that said, it will be wise to wait for some subsequent selling below the triangle support before placing aggressive bearish bets.

The EUR / GBP cross could accelerate the slide to challenge the key psychological level of 0.8500 en route to 14-month lows around the 0.8470 region touched in April.

On the other hand, the 0.8600 level now appears to act as a strong immediate resistance. Any subsequent positive movement has the potential to lift the EUR / GBP cross further, although it is likely to be exhausted near the resistance of the trend channel (triangle), currently around the 0.8640 region.

That said, a sustained move beyond will nullify the bearish setup and trigger an aggressive short-covering move. This, in turn, should push the EUR / GBP cross past intermediate resistance near the 0.8670 area and allow the bulls to target to regain the round 0.8700 level.

Daily chart

Technical levels