EURGBP may be gearing up to break free from the congestion that has been in place for most of 2015. The pair has now lost more than 300 pips since falling below trend line support that extends off of the August low and is currently just 80 pips away from setting a new low for the year.
Following the trend line break, the first level of support that we focused on was the 0.7210 handle. This level is most notably the July high which later became the September low.
The pair found interim support here, however the selling pressure proved too strong as the bears managed a close below 0.7210 on October 23rd. The subsequent retest of the level as new resistance provided yet another opportunity for traders to enter short.
The second key support level, which I commented on last Tuesday, is the 0.7055 handle. This area previously attracted buyers during the months of March and May.
While the cross did find a bid at this level late last week, Monday’s break has the bulls on their heels once again. But as we know, not just any break below support is worth selling.
If recent price action is any indication, a move back to the mean, or in this case the 10 EMA, may be in order before the next leg down can commence. Such a move would likely coincide with a retest of 0.7055 as new resistance, which is needed in order to secure a favorable risk to reward ratio.
My bearish bias will remain intact as long as the pair remains below 0.7055 on a closing basis. Key support comes in at the 2015 low of 0.6935.