Euro Trying to Break Out Against British Pound

Alan Penny

27 September 2019

2 min read

Euro stalls

  • 8% Fibonacci level has held
  • Crossing the 200-day EMA
  • Testing several wicks

The euro has rallied quite significantly during the trading session on Friday, reaching towards the 200-day EMA and even breaking above it midday. This has a certain amount of psychological importance which could send traders back into the market to try to take advantage of a nice pullback.

Brexit confusion

The situation surrounding Brexit continues to be very murky, to say the least. It’s likely that the British pound will continue to take it on the chin when it comes to the currency markets. This is particularly interesting because the euro will be affected by what happens with Brexit as well. It is essentially going to be a case of which economy gets pummeled the least.

The European Union is a disaster just waiting to happen.

What is particularly telling about this chart is that the British pound is having trouble fighting off the advance from the euro, even though Germany is heading towards a recession and Italy is already there. The European Union is a disaster just waiting to happen. The fact that traders are willing to go against the grain on this trade suggests there is no clear path out of the political messiness that is Brexit.

The technical analysis

eur/gbp chart

EUR/GBP daily chart

The 200-day EMA has been crossed during the trading session, and it has also offered a significant amount of resistance over the last couple of weeks. The market has tried to break above it several times over the last couple of weeks, but failed each time to get there. We ended up forming long wicks to the upside, suggesting that there is still a lot of bearish pressure. The fact that the candlestick for the Friday session is reaching up without facing much resistance tells us that a lot of the selling pressure and orders in this general vicinity have finally been taken out.

Beyond that, the 61.8% Fibonacci retracement level underneath has offered support, as the so-called “golden ratio” quite often will attract a lot of long-term trading. The fact that the market bounces from there so stringently is a good sign, especially considering that the market is showing signs of resiliency and continued fight going higher.

Finally, the market has also broken above the top of the shooting star from the previous session. This is a very bullish sign as it shows that traders who had been short of the market during the previous day are now “trapped”. In order to reverse their trade, they are going to need to start buying. In other words, it’s very likely that this pair will break out against the resistance just above and continue to grind towards the 0.90 level. Pullbacks at this point will probably be relegated to simple consolidation, as they have been over the last several weeks. One thing is for sure: the buyers are certainly sticking to their guns.

Written By
Alan Penny

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