Despite a pullback in April and May, the EURGBP has marched higher in 2016 without much hesitation. The Euro cross is up nearly 1,500 pips so far this year, which is impressive for a pair that typically moves less than 100 pips in a single session.
However, a recent development in the form of an upward sloping flag hints at the idea that the pair could struggle to make additional gains, at least not without giving up significant ground first.
With that said, any attempts at shorting the pair at current prices would be severely against the grain. Not to mention the fact that buyers just carved out a new five-year high, so bullish momentum is certainly alive and well.
I also want to point out that just like any other technical pattern, upward sloping flags can and do fail. There is no guarantee that buyers won’t continue their rally efforts and take out the channel resistance you see in the chart below.
But more often than not these patterns signal an exhaustion of the current trend. We’ll just have to wait and see whether EURGBP becomes the norm or the exception.
With a formation such as this, I prefer to wait for a break of support, which means we’re likely a few weeks away from something favorable materializing.
For now, I’m just keeping this on my watchlist. I’m also taking note of the gap from the June 24th Brexit which remains unfilled and also aligns with the April high at 0.8116.
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