The EURGBP was one of my top trade ideas for the past week. We first discussed the retest of channel resistance on August 28th. The bearish rejection candle on the 29th signaled that buyers were exhausted and a move lower was likely.
We reviewed the Euro cross again over the weekend when the pair was trading at 0.9115. However, the best indication of an imminent selloff came with Tuesday’s close below channel support.
By 5 pm EST, sellers had secured a 0.9008 close, which was well below our key level at 0.9040. This left us watching for selling opportunities from the 0.9040 area for a move toward 0.8920 and perhaps 0.8780.
Both Wednesday and Thursday encountered selling pressure in the 0.9040 region. The former reached a high of 0.9038 while the latter stretched a few pips higher toward 0.9042.
As you can see from the chart below, buyers didn’t put up much of a fight at 0.8925. Instead, the pair closed well below the area and continued its decline until bulls finally found some relief on Friday at 0.8780.
This week’s aggressive selloff leaves the EURGBP overextended, particularly when we compare today’s price with the 10 and 20 EMAs in the chart below.
With this in mind, a bounce from the 0.8780 area early next week would not be a surprise. In fact, I’ll be keeping an eye on this level for a second opportunity to get short.
A daily close below the 0.8780 handle over the coming weeks would expose the next key support at 0.8600. A close below that would target the unfilled gap from April 21st at 0.8369.
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