EUR/GBP breaks out of a rising channel

EURGBP decisively broke and closed below its rising channel yesterday following a failure of the 200 ema and the bottom of the rising channel to hold as support. This break has eased upside pressures and changed bullish view on this cross.

After making a six-month low in May at 0.6752, EURGBP rallied above its emas and .50 Ret and then hit a high at 0.6909 before selling off towards the channel bottom which held and pushed the cross higher taking out 0.6909 level (Jun’06 high) to make a new high at 0.6959 in July. This level coincided with a confluence of a horizontal resistance line, .786 Ret and the channel top making it a strong resistance zone. As can be seen on the chart, the cross subsequently sold off from this level breaking through .618 Ret and the three emas (50/100/200) which culminated in the break of the channel bottom yesterday.

Figure 1: Daily Chart

Figure 2: Weekly Chart

Now that the rising channel bottom has been violated on a closing basis, what is the next on EURGBP’s agenda? This cross looks set to test its 13-month rising trendline (blue) drawn off June’05 low, but in order to achieve this, EURGBP has to push through 0.6809 support first before launching attacks on the rising trendline and later its May low at 0.6752.On the other hand, the recent decline has pushed this pair into an oversold zone making a bounce towards the channel break point (which should now act as support) probable in order to relieve this condition.

On the whole, the break below the rising channel bottom has skewed the short term trend to the downside.

Happy Trading

Mohammed Isah