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EUR/GBP Price Analysis: Falls within its multi-month range

  • The EUR/GBP pair is breaking back into a medium-term range after briefly breaking higher.
  • The pair is extending its sideways trend and could pull back to the lows of the range.
  • The MACD has crossed below its signal line giving a bearish signal.

The EUR/GBP cross is retreating within its multi-month range after temporarily breaking higher on May 7.

The retracement within the range continues the sideways trend of the pair. This trend is expected to continue, given the old market adage that “the trend is your friend.”

EUR/GBP 4-hour chart

After breaking above the top of the range on May 7, EUR/GBP formed a multiple high pattern. It has now broken down through the neck line of the topping pattern and has begun a steep decline back into the middle of the range. There is a possibility that the pair pulls back towards the support at 0.8540.

The MACD (Moving Average Convergence Divergence) indicator crossed below its red signal line on May 10, giving a sell signal. This caused a further decline in EUR/GBP and eventually a break lower.

For a sideways trend reversal to be confirmed, EUR/GBP would need to decisively break below the range lows or above the April 23 high.

In the event of a break below the range floor, such a move would open the way to a bearish target at 0.8486 – the 0.681 Fibonacci ratio of the range height extrapolated downward from the channel base. This is the method used by technical analysts to estimate range breaks. Further weakness could even lead the price to reach the next target at 0.8460, the full height of the downside extrapolated range (1.000).

A decisive breakout would be one characterized by a long candlestick breaking completely below the range floor and closing near its low, or three consecutive red candlesticks clearly breaking through the level.

The top of the range has already been broken several times, suggesting that it has weakened and providing a less reliable support or resistance level. For confirmation of a new uptrend now, it would not be enough for EUR/GBP to simply break above the top of the range, but rather it would have to make a higher high above the April 23 high at 0.8645.

Source: Fx Street

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