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The euro currency is coming under increasing pressure against British pound after yesterday’s Bank of England policy meeting caused the British currency to move higher against a number of top currencies.
Prior to the latest decline the EURGBP the pair had been on shaky ground and appeared vulnerable to further heavy losses. The technical outlook is particularly bearish for the EURGBP pair at present. What is striking is that the bearish technicals now match the bearish fundamentals.
In trading the optimal environmental for market participants is to have the techncials and the fundamentals aligned. This creates confidence that both the smart money, think institutions, and technical traders are on the same side.
Yesterday’s message from the Bank of England was clear, in that negative rates are not currently being considered. Traders considered that to be bullish for the British pound. Additionally, the vaccine rollout in the UK is vastly outpacing other powerhouse economies in Europe at the moment, such as Germany, France, and Italy, further enhancing the so-called “vaccine trade”.
Future growth prospects for the UK may therefore be perceived to be greater than the eurozone, hence the bullish skew on the fundamental side towards the UK at present. The political environment is also more stabilized after Brexit. The only long-term consideration for bulls maybe be the UK breaking away from Scotland, but that is far from the markets radar at present.
Something else to consider is the fact that European Central Bank is openly talking down the single currency. This is a major negative for the EURGBP pair in the near-term. Just how much jaw boning the ECB will undertake remains to be seen.
It must be said that this tactic has proved to be effective as the euro currency has depreciated against the US dollar, yen, and a basket of commodity-related currencies since the ECB hit the wires talking down the euro.
With the technical picture looking particularly bearish it is hard to see what can stop the fall in the EURGBP pair at present. Risks are definitely tilted to the downside at present, and the short, medium, and long-term trend should remain bearish.
EURGBP Short-Term Technical Analysis
According to the four-hour time frame a massive head and shoulders pattern is now in play, following the recent confirmed breakout under neckline support, around the 0.8860 level.
The overall size of the bearish head and shoulders pattern suggest that the EURGBP pair is headed towards the 0.8450 level over the short-term.
Traders should also note that the short-term trend is bearish while the price trades below the 0.8880 level, and that a breakout from the Bolling Bands on the four-hour time frame has taken place after the 0.8790 level was breached.
Source By ActivTrader.
EURGBP Medium-Term Technical Analysis
Looking at the daily time chart, a large broadening wedge pattern can clearly be seen, and remains the most striking feature amongst the patterns in play across the higher time frames.
Following a notable rejection from the top of the wedge last year sellers may start to take the EURGBP pair towards the bottom of the broadening wedge, around the 0.8000 level. This is likely to remain a long target.
In terms of medium-term targets, the 0.8450 level appears likely. This is the lower Bollinger Band on the monthly time frame. The EURGBP pair has broken under the mid-Band and looks on the way to testing the lower Bollinger Band.
Source By ActivTrader.
