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Just last week the EURGBP was surging above the 0.8980 resistance level. Thursday’s session even closed above it. Then came Friday’s session which nearly engulfed all 80 pips of gains from the previous session.
As it stands, the close above 0.8980—a level that had capped several advances since October 6—looks more like a false break than anything else.
When this happens, we can begin to watch for favorable selling opportunities. After all, a pin bar or rejection candle is nothing more than a false break on a lower time frame.
Look no further than the weekly chart below.
But instead of trying to trade a weekly candle, there might be a better way to approach the EURGBP.
A look at the 4-hour chart shows an ascending channel. The pattern extends from the September low at 0.8746 and is easily recognizable as consolidation.
That’s the key here. The selloff that began in late August looks impulsive to me. And as we’d expect, an impulsive move is followed by a correction (also referred to as consolidation).
If we take it one step further and label the last four weeks as a bear flag, we get a measured objective of 0.8470. However, do keep in mind that bear flags perform the best during downtrends. The EURGBP clearly doesn’t fit that mold.
Still, the bullish momentum seems to be waning here. I mentioned that back in August when the pair was testing channel resistance near 0.9280 and again when sellers cleared channel support near 0.9030. Nothing has occurred to convince me otherwise.
There is also a massive trend line that extends from the November 2015 low. See this post for a detailed view of that level.
In summary, I like the idea of selling the EURGBP on a close below channel support. That level comes in at 0.8896 at the time of this writing. Key support below that includes 0.8830 (2015 trend line), 0.8744 and 0.8600 with an objective of 0.8470.
And judging by recent price action, I would say a breakdown is imminent. But as always, I’ll let time be the judge.