EUR/GBP Reversal At Hand

I hardly think so. But yesterday I read 2 analyses on $EURGBP that spelled out opposing views on the future direction of the pair. And I think, as traders, it is always important to consider both sides of a trade no matter your own opinion on price action.

The Bear Case

EURGBP monthly chart

Despite the recent new highs (today at 0.8710), price does remain in this downward channel that has been forged over the past 4 years. The fundamentals weakly suggest that the UK economy is doing relatively better than the rest of the EU economy. The bears do have a case especially at these levels.

The Bull Case

After trading in a range for over 10 weeks, the $EURGBP broke that range to the upside. Typically, a breakout ensues in the direction of the break when there has been a well-established range. And the $EURGBP did break out to a high today at 0.8710. However, the Bank of England minutes of Governor Carney’s 1st meeting revealed a much more hawkish central bank. Additionally, UK unemployment data came out much stronger than expected. As such, the $EURGBP has pulled back into the Fibonacci levels of the rally after the range break.


Even on this pullback, the bullish picture remains intact. The market now awaits the testimony from Fed Chairman Ben Bernanke. Dovish comments from Bernanke could support the EUR and push the pair back above 0.8700. However, if the pullback extends beyond the 61.8% Fibonacci level, only a daily close below 0.8574 would indicate bearish price action in the short term targeting 0.8500.

Trade what you see.

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