Following the post-Brexit rally that launched EURGBP higher by more than 1,000 pips, the currency cross has found itself trading sideways for the last two weeks.
Within the sideways price action since July 13th, we can see that a wedge has formed. The upper level extends from the July 14th high while the lower boundary extends from the June 29th low.
Most often, a wedge that develops after an extended move signals a continuation of the prevailing trend. However, there is one thing about the structure below that doesn’t fit the mold.
The rounded top that formed between late June and mid-July is a sign of potential weakness. With this in mind, the wedge you see below could very well be a reversal pattern rather than a continuation of the uptrend.
But as always, the only thing that matters is what the market does. And for that, we turn to today’s FOMC statement at 2 pm EST.
To be clear, I have no intention of trading before or during this time. While a cross such as EURGBP will be relatively insulated from the US-based event, the increase in volatility and widening spreads are sure to make for unfavorable trading conditions.
Instead, I’ll remain on the sidelines and wait for the dust to settle. A close beyond this wedge pattern followed by a successful retest of the broken level could make for a favorable opportunity.
While a close above resistance would expose recent highs near 0.8600, I’m more interested in a break of support.
The reason for this lies in the unclosed gap from June 24th at 0.8125, which just so happens to line up with the 200-pip measured objective.
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