EUR/GBP Set to Break Out

Alan Penny

7 October 2019

3 min read

Euro drifts again Sterling

  • Pair stuck between significant support and resistance
  • Sitting just below 50-day EMA and just above 200-day EMA
  • Recent bounce from major Fibonacci level

The EUR/GBP pair is Ground Zero for Brexit, as headlines continue to go back and forth between London and the EU with the deadline looming. At this point, the currency pair will reflect traders’ sentiment with regard to what comes next for the economies. Both currencies are very soft in general, so this is essentially a battle between two lightweights.

Stuck between support and resistance

eur/gbp chart

EUR/GBP 6-monthly chart

The currency pair is currently stuck between significant support and resistance. The initial resistance above would be at the 0.8935 region, where we have seen a couple of tails from shooting star candles. We also have the 50-day EMA just above there, which offers a significant amount of resistance. At this point, it’s likely for that area to continue to offer considerable pressure. There is a significant amount of support underneath at the 200-day EMA and even more importantly at the 0.8845 level, where we have seen several candlesticks find buyers. In other words, the pressure is starting to build up in this currency pair. Eventually, an impulsive candle will be printed, and that should show the next move.

Fibonacci and a flag

The Fibonacci retracement level below the 61.8% level should, in theory, offer quite a bit of support. The 0.88 level is also able to benefit, but you can also make an argument for a potential bearish flag trying to form. We are getting mixed signals everywhere, which is normally a sign that we are about to have a massive move in one direction or the other. Ultimately, one of these larger signals will kick off, and that determines where the market goes next.

We are getting mixed signals everywhere, which is normally a sign that we are about to have a massive move in one direction or the other

Potential targets

If the market was to break to the upside, the next logical target would be the 0.90 level – a large, round, psychologically significant figure. It could even be broken to the upside and reach towards the 0.91 handle. However, while breaking down below the 61.8% Fibonacci retracement level or the 0.88 handle wipes out a lot of the support, it also opens the door to the 0.85 level, which would be the 100% Fibonacci retracement. Both of these moves could be rather violent, and each would be more than likely driven by headlines involving Brexit. Those headlines can come at any time, as we are simply muddling along just three weeks ahead of the potential breakout.

There is a very real possibility that the next impulsive move could be a longer-term one, so don’t feel that you need to “jump the gun” when it comes to getting involved. You should have plenty of time to benefit from this move that’s clearly winding itself up for the next few weeks, where we should get quite a bit of volatility.

Written By
Alan Penny

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