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by Charalambos Pissouros

EUR/GBP Retreats, but Still Above the Upper Bound of a Channel

EUR/GBP had been in a flying mode from the 16th until the 19th of July. On the 20th of the month, the rate hit resistance near the 0.8960 barrier and then, it retreated. The rally brought the rate above the upper end of the downside channel that had been containing the price action since the last days of September 2017, and despite the latest setback, the pair holds above that bound. What’s more, EUR/GBP is trading above the upside support line drawn from the low of the 17th of April. So, having all these in mind, we believe that the outlook is now cautiously positive.

If the bulls manage to take charge from near the upper end of the aforementioned channel, or the 0.8900 zone, then we would expect them to pull the trigger for another test near the 0.8960 resistance hurdle. That said, we would like to see a clear break above 0.8975 before we get confident on larger upside extensions. Such a break would confirm a forthcoming higher high on the daily chart and may pave the way towards our next obstacle of 0.9015, defined by the peak of the 15th of November.

Looking at our daily oscillators though, we see signs that the latest pullback may continue for a while more. The RSI turned down after it hit resistance near its 70 line, while the MACD, although above both its zero and trigger lines, shows signs of topping as well.

A clear dip below 0.8890 would bring the pair back within the aforementioned channel and may set the stage for declines towards the 0.8820 support territory. Nevertheless, the rate would still be trading above the upside support line drawn from the low of the 17th of April, and thus we would still see a decent chance for a rebound from that zone. We prefer to wait for a clear dip below 0.8800 before we start examining whether the bulls have abandoned the battlefield. Such a dip may carry more downside extensions and may open the path towards our next support of 0.8725, marked by the low of the 21st of June.

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