Yesterday we took a technical look at EUR / USD and concluded that the pair’s ever-tightening range around 1.0900 is nearing a potential breaking point in the near future. Today we wanted to enter the second most traded euro cross, EUR / GBP.
Like the EUR / USD, the EUR / GBP has spent the last six weeks limited to a relatively tight range, in this case between support at 0.8680 and resistance up 0.8860. As the chart below shows, this resistance level represents the 23.6% Fibonacci retracement of the entire mid-March to late April fall:
As it stands, there are two interpretations of the recent side action of prices – a bullish and a (potentially) bearish:
1) It is just a range trade that reflects the consolidation and balance between buyers and sellers. Under this interpretation, it may be likely that rates will break lower in line with the previous trend.
2) The pair forms a “rounded bottom” pattern that shows a shift from sales to buying pressure and potentially opens the door to an almost long-term rally against at least 38.2% Fibonacci retracement near 0.9000.
Of course, readers are welcome to use their preferred technical indicators to help handicap which scenario is more likely, but the next marketable breakout may ultimately be related to this week’s financial data. The UK is scheduled to release its preliminary GDP estimate in Q1 tomorrow at. 7:00 GMT followed by a webinar presentation by new BOE Governor Andrew Bailey on Thursday at. 11:30 GMT and the release of German Q1 GDP at 7:00 GMT on Friday.
If these data points show more optimism about opening up the economy on one side of the English Channel or another, it may be the catalyst to finally take the EUR / GBP out of its established range!