EURGBP reaches a critical juncture
EURGBP has not looked back since it took off from its Aug’06 lows at 0.6719/22 zone until last week, Thursday when it bumped into its falling trendline established in July’06 and closed lower at the end of the day. It put in a positive performance to close the week on the high side at 0.6794, the highest close since Aug 21’06.
In May’06, EURGBP had bottomed and later powered off that bottom to a high of 0.6959 between May and early July after a shallow retracement.Following its failure to surpass its April’06 high at 0.6977,EURGBP declined sharply to a low of 0.6719,lower than its May low at 0.6752.The new low coincided with a horizontal trendline drawn off its previous lows in Sept,Nov and Dec,2005.In an attempt to unwind an oversold condition, it rallied off that low to a .382 Ret and sold off stopping at that same red horizontal trendline but this time its momentum indicators did not confirm this low creating a condition known as positive divergence, a situation where price is making lower lows and the underlying indicators are making higher lows. In addition, EURGBP has formed a potential double bottom with the first bottom formed in early Aug’06 and the second in early Sept’06.
Figure 1: Daily Chart
Figure 2: Weekly Chart
Where does this pair go from here especially now that it is sandwiched between its falling trendline and its horizontal support? Let’s take a look at the charts to find some clues. The daily chart seen from the downside perspective is weakening judging from the positive divergence displayed by momentum indicators occurring at an important support zone (0.6706/19) which has held three times in 2005.Upside price gains looks favoured in this scenario based on the above view. In addition, weekly stochastics is oversold and the RSI is already pushing to the upside supporting the situation on the daily chart.However, on the upside, a lot of overhead resistance must be cleared to pave the wave for higher price gains. The falling trendline currently at 0.6802 comes in first ahead of 0.6829/34, its Aug 21’06 high/200 ema. A sustained close above this level confirms the double bottom pattern giving us a price target of about 0.6939,just twenty pips from its July’06 high at 0.6959. On the whole, with EURGBP’s downside momentum weakening at an important support zone and positive signals coming from both the daily and weekly charts, higher prices are expected
Happy Trading
Mohammed Isah
is a private trader and an independent technical analyst. He initially traded stocks and now primarily focuses on forex. He produces Weekly, Mid-Week and Friday forex technical research which is available at www.tradingmarkets.com/fxtechnicalresearch.
He also has a Daily, Weekly and Monthly pivot points reports. You can contact Mohammed on his pivot points reports and other enquiries at:
isahmo@gmail.com