Technical Sentiment: Bullish
Key Takeaways
- U.K. Inflation is at the lowest point since 2009;
- Minutes of BoE Monetary Policy does not provide any new information;
- Correction could extend higher towards 0.8064.
EUR/GBP bounced higher during the European session as Sterling bulls are unwinding their positions across the board. The correction is expected to be short lived, so traders should remain on the lookout for bearish signals to sell this rally.
Technical Analysis
EUR/GBP is trading above 0.8010 as the US session is off to a very slow start. The FOMC Statement and Press Conference should stir some action in several hours, but for EUR/GBP the correction should play out nonetheless.
On Monday the pair bounced off 0.7960, an old support line dating back to April – November 2012. Daily Stochastic is in oversold territory, signaling the formation of a short term low and the beginning of a correction. Today’s bar is taking the shape of a Bullish Engulfing Bar. A firm Daily close above the psychological handle at 0.8000 will definitely help the scenario for a bullish correction in the coming days.
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The first target for the correction is the pivot zone formed in the first half of June, priced at 0.8064. If sellers don’t appear here, EUR/GBP might climb even higher toward 0.8157, the main pivot zone for 2014 (currently strengthened by the 100-Day Simple Moving Average).
It is important to underline that the most recent Lower High in the downtrend is at 0.8150. Consequently, the trend remains bearish for now and the preferred strategy is to sell the pair if it rejects off the previously mentioned resistance levels.
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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets
