With main financial occasions in February from each the U.Ok. and Euro zone, we’ve bought a stable technical setup to take a look at that would result in a swing or longer-term play on EUR/GBP.
EUR/GBP: Each day
EUR/GBP Each day Foreign exchange Chart
Yesterday, my good friend Niko identified a really stable chart setup on EUR/GBP, so I made a decision to dig a bit of bit deeper into the pair for a possible commerce concept.
Worth Motion
As we will see on the day by day foreign exchange chart above, the pair has been in a stable downtrend since September of final yr with clear swing tops and bottoms alongside the way in which.
After a spike increased final week, the market is on its means again to the falling ‘highs’ sample, which coincides with the most recent Fibonacci retracement ranges and an overbought sign from the stochastic indicator.
We will additionally see that the candlesticks simply fashioned an Night star (a bearish triple candlestick sample), and as we’ve seen within the current previous, bearish candlestick patterns have preceded turns decrease in worth. That raises the percentages of this week’s sample drawing in technical bears as soon as once more.
Fundamentals & Catalysts
Basically, it’s probably been the divergence in financial coverage strikes/hypothesis that’s fueled the downtrend in EUR/GBP. The Financial institution of England has been in fee hike mode (hiked final week to 0.50%), whereas the European Central Financial institution holds off on fee hikes. The ECB additionally continues to view the present excessive inflation surroundings as transitory.
And whereas it appears to be like just like the ECB is beginning to heat as much as fee hike potentialities these days, odds are that it’ll be a really lengthy whereas earlier than we see rate of interest tightening within the Euro zone, particularly if financial knowledge and sentiment continues slowing forward.
And talking of what’s coming forward, we do have a number of main catalysts in February that would affect the subsequent directional transfer for EUR/GBP. Most notably, a U.Ok. GDP replace this week, then U.Ok. CPI knowledge subsequent week, and eventually, Euro zone / U.Ok. enterprise sentiment knowledge close to the top of the month.
General, if the information continues to level to excessive inflation within the U.Ok. whereas European enterprise sentiment knowledge slows, then this bearish technical setup could have legs to proceed the pattern decrease.
For longer-term or swing merchants, be on the look out for these occasions and construction trades accordingly (i.e., modify your place dimension as market knowledge and worth motion verify/invalidate your lengthy or brief thesis).
However what do y’all suppose? Is that this the swing high for EUR/GBP and can it return to the downtrend? Or will the falling ‘highs’ sample break? Please tell us in our remark part beneath!
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