- EUR / GBP has been swinging in a tight trading zone for the last week or so.
- The setup still seems skewed in favor of bearish traders, although it warrants some caution.
- A sustained move past the 0.8700 mark is needed to nullify the bearish outlook.
The EUR/GBP it fell for the second session in a row on Thursday and was last seen hovering near the lower limit of its weekly trading range, around the 0.8625 region. The recent price action over the last week or so has been confined to a tight trading band, which appeared to constitute the formation of a rectangle on the short-term charts.
A rectangle is a continuation pattern that pauses briefly during a well-established trend. Given the recent sharp pullback from levels beyond 0.9200, the setup favors bearish traders. The negative outlook is reinforced by the fact that last week’s attempted rebound from the nearly one-year lows was met with rejection near the breaking point of the horizontal support at 0.8700.
Meanwhile, the RSI indicator (14) on the daily chart is holding closer to 30, which marks oversold conditions. This seemed to be the only factor preventing traders from placing new bearish bets and should help limit any further decline for the EUR / GBP cross. That being said, sustained weakness below the weekly trading range will mark a further bearish breakout.
The EUR / GBP cross could become vulnerable to further weaken below 0.8600. The downward trajectory has the potential to drag the cross towards multi-month lows, around the 0.8540 region touched on February 24.
On the other hand, the 0.8665 region now seems to have emerged as a strong immediate hurdle. A sustained move further could trigger a short hedging move and help the EUR / GBP cross make a further attempt to regain the 0.8700 level. Some subsequent buying will set the stage for a further short-term recovery towards the 0.8775-80 supply zone.
A subsequent strength above 0.8800 will see the EUR / GBP bottom out in the short term and pave the way for a significant recovery in the short term.
4 hour chart
Technical levels
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