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Over the weekend we discussed the long-standing trend line support on the EURGBP. The level has been propping up the rally that began in November of 2015.
All of that changed just hours ago. The Euro cross closed Monday’s session at 0.8821, about 10 pips below former trend line support at 0.8830/40. That means any retest of support turned resistance will likely attract an influx of selling pressure.
Those who have followed along shouldn’t be surprised by this breakdown. Ever since the EURGBP topped out on August 29 I have held the view that the pair was in the process of carving a significant top.
Even last month’s selloff appeared to be impulsive, suggesting that supply was beginning to outweigh demand by a hefty margin. But without yesterday’s close below trend line support, there wasn’t much evidence that any bearish movement would have a lasting effect.
From here I’ll be on the lookout for a favorable selling opportunity on a retest of the 0.8840/60 area as new resistance. As long as this region holds on a daily closing basis (5 pm EST), I will maintain a bearish outlook for the EURGBP.
The first key support comes in at the September low of 0.8744. A daily close below that would expose 0.8600 followed by 0.8400.
Keep in mind that the trend line that just failed extends back nearly two years. As such, I would anticipate that the next bear move from the EURGBP to last several weeks if not months. That is, as long as sellers can maintain sub 0.8840/60 prices.
Note that this Thursday, November 2 is the Bank of England rate decision. The event kicks off at 8 am EST and will no doubt shake things up for the pound.
While not as significant for a cross currency, non-farm payroll is also this Friday, November 3 at its usual time of 8:30 am EST.