Euro Continues Slipping Against British Pound
- Testing major support level
- Heading towards 100% Fibonacci
- Breaking below extreme lows
- Continued optimism on Brexit
The EUR/GBP pair had skyrocketed over the last couple of years, based on the British vote to leave the European Union. For quite some time, it was a simple matter of buying on the dips when they appeared. However, we have recently seen quite a bit of optimism when it comes to Brexit, culminating in the action that we have seen over the last several days.
The pair has reached towards the 0.87 GBP level, an area that was previous resistance, as marked on the chart. The formation of the inverted hammer during the trading session on Monday shows there is continued and significant downward pressure on this market.
More importantly, Tuesday has seen this pair break down below that candlestick and reach a fresh low, albeit just barely. This shows that the support level is being chipped away slowly. It typically means there is sustainable pressure, and that it isn’t going to go anywhere. In fact, you can use the 0.88 level, the top of the inverted hammer from Monday, as a short-term “ceiling” in the market.
Fibonacci looking toward maximum levels
The Fibonacci retracement tool on the chart shows that we are below the 61.8% Fibonacci retracement level, which typically means that the market will go looking to reach the 100% Fibonacci retracement level given enough time. This pair could drop another 200 pips towards the 0.85 level, which makes quite a bit of sense, considering it is a psychologically significant figure. Of course, large money movements tend to happen at these levels.
The red-50 day EMA is starting to slope lower and getting relatively close to the 200-day EMA, shown in black on the chart. Once this happens, the so-called “death cross” starts. This is a longer-term signal for a bearish trend.
Granted, it is extraordinarily late most of the time, but it is something that could throw algorithms into the mix as well, further exacerbating downward pressure. Either way, both of these moving averages are starting to slope decidedly negatively.
Unfortunately, this is a pair that will be susceptible to a lot of headline noise, which will certainly continue to be the case going forward. As we get close to Brexit and the October 31 deadline, you can expect more of that noise to come out.
However, optimism seems to be the flavor of the day. Until that changes, we are more than likely going to see this pair continue to go lower, perhaps reverting to the mean of the longer-term charts – which means we have much further to go to the downside.