EURGBP has enjoyed somewhat of a surprising rally since early August. This has caused some to speculate that the pair had bottomed after a twenty six-month downtrend that began in mid 2013.
However yesterday’s price action suggests that this latest strength was likely a simple relief rally within the larger downtrend. The break below the trend line that extends off of the August low combined with a failure at the 0.7330 horizontal level is a sign that the bears have returned.
The weekly chart also shows a large bearish rejection candle after last week’s failed attempt to climb above the 0.7480 handle.
From here traders can watch for a retest of the 0.7330 area as new resistance. Bearish price action from this level could offer a favorable opportunity to get short.
As for support, the next critical area comes in at 0.7210, which lines up with the July high as well as the September low. A break there would expose the 0.7055 area and possibly a retest of the multi-year lows around 0.70.
Do note that Thursday’s ECB decision is sure to stir things up for the Euro, which of course will spill over into pairs like the EURGBP.
Summary: Watch for bearish price action on a retest of 0.7330 as new resistance. Key support comes in at 0.7210, 0.7055 and 0.6935. Alternatively, a daily close back above former trend line support would negate the bearish bias and turn our attention higher.