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EURGBP Could Slide to 0.8120 Following Yesterday’s Break

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From a technical standpoint, the EURGBP post-Brexit rally was a momentous event. Not just because of the 520 pips gained in a single session, which is a rarity for the cross, but because it broke an eight-year pattern.

The monthly chart below illustrates the descending channel, which could very well be a multi-year bull flag pattern.

eurgbp-monthly-channel

Of course, a pullback is only natural after a 1,600 pip move. But the price action over the last two months has been a bit hard to read at times, at least without seeing the structure below.

What may have seemed like disorderly movement was, in fact, an upward sloping flag. This formation, which often has bearish implications, broke to the upside during the October 7th pound flash crash.

However, buyers were unable to sustain the lofty prices. And just four trading days before the U.S. elections, the pair gave up its newly acquired support level at 0.8900.

So the massive bearish rejection bar following the Trump victory was actually a retest of channel resistance.

Fast forward to today and we can see that yesterday’s session broke below channel support near 0.8530. But before you rush off to sell the EURGBP, you should know that 0.8488 is also key support for the pair.

With this in mind, it may be prudent to wait for a close below 0.8488 before considering an entry.

As for a final target for the cross, one idea is the confluence of support at 0.8120 via the April high and twelve-month trend line. A move to this area would also close the gap that’s been left open since the June 24th Brexit.

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eurgbp-daily-chart

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