EURGBP Reversal?

Hello Forex traders,

Earlier this week various currency pairs were discussed such as the GBPUSD, the potential Yen / Cad / Aud price movements, and even the Iraqi Dinar. Today when analyzing all of the currency pairs in the early morning, I realized that it was a long time ago since we last discussed the EURGBP (EG). Furthermore, the EG could be in an interesting and decisive position – or in other words: at a break or bounce spot. 

BIRDSEYE VIEW

First of all, the last couple of months the Euro has been losing ground versus the British Pound. How does that downtrend fit on the monthly chart?

27- 2- 2014 eg m

Currently price is building a contracting triangle, which means that price is building on higher lows and lower highs. The downtrend started at the top of that contracting triangle and price is now approaching a potential support line, which is a bounce or break spot.

27- 2- 2014 eg w

When zooming into the weekly chart, price has been in the down trend ever since July 2013 indicated by the orange trend channel. On its path down, price has respected each of the Fibonacci levels that are placed on the most recent swing high swing low (from the 61.8% blue Fib to the top at February 2013).

Most recently price has hit and respected the 61.8% Fibonacci level (green). A 61.8 Fib is always a significant Support or Resistance, and could even be a major bouncing spot or turning spot. Especially if a support trend line is nearby.

ZOOMING IN…

On the daily chart the downtrend becomes more visible and the down trend channel (orange) provides a great indication of the most recent flow of the market. 

The down trend channel could also be considered a minor / smaller falling wedge. The top and the bottom of the trend channel lines are actually slightly converging (the top line has a steeper angle of 24 degrees and the bottom line has a shallower angle of 17.6 degrees).

There is also multiple divergences between the bottoms. With each bottom break the momentum has been decreasing compared to the previous bottom break, which indicates less and less momentum. The loss of momentum is an important sign that the EG might be running out of steam, but extra clues of confluence are always key in confirming.

27- 2- 2014 eg d

CONFIRMATIONS & CONCLUSIONS

On the 4 hour chart it becomes obvious that the entire pair has been relatively choppy and sideways with spikes up and down. The recent up move has encountered rejection at the 61.8% Fibonacci retracement (green Fib) and has been breaking to lower grounds ever since…. Is this a reason to short?

Is the down side currently interesting to trade?

In my opinion not. Price is very near a weekly support trend line and has multiple divergence on the daily chart with minor falling wedge. Those area signals to be cautious so I rather sit on the sidelines.

Is there prospect to go long?

If you like reversal trades, then this could be one worth keeping an eye on. A bounce off of the 61.8% or 78.6% Fib (blue Fib) would be the reversal idea, but don’t get bummed out if the trade does not work out – the EG sometimes has a mind of its own. The other safer option would be to wait for a break of the weekly triangle: either a break above orange for upside or a break below purple for more downside.

27- 2- 2014 eg 4

Do you trade the EG? What are you looking for? Let us know down below!

Thanks for sharing this article, much appreciated! And Good Trading!

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).

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  • Murat A. ERKAN

    A Great article, Chris! One couldn’t outline it better. A great help, thank you so much…