Rectangle Signals Further Rally in EUR/GBP

The EUR/GBP hourly chart has a very impressive consolidation rectangle pattern. The tops are at 0.8766 level and the lows at 0.8707 level. Doing some research, the rectangle is a very bullish pattern when present at the beginnings of an uptrend.

Also note, how price has been respecting the 61.8% Fibonacci retracement level. This is an important level to watch intraday. It suggests that a breach of this level (not the 50% Fib) would signal a reversal of the intraday trend. It also provides opportunities for much better entries on trades when looking to build a swing position in this pair.

I also like how the fundamentals are shaping for this pair. In addition to those already noted here, UK economic data has been surprisingly week leading into tomorrow’s Ban of England’s monetary policy decision. Tomorrow will be very interesting. With the European Central Bank decision also tomorrow any contrast in monetary policy will determine the direction of this currency pair. Moreover, non-farm payrolls will drive USD action which will invariably affect the EUR/GBP via flows in the EUR/USD and GBP/USD on Friday.

Given the technical developments in conjunction with the fundamental landscape, it is possible that we see a reversal of this strong downtrend in the short term as already suggested by the above price action. Expectations still remains for a probe of 0.8794/0.88 level. A sustainable break of that level confirms a reversal may be unfolding and the pair could further rally back towards 0.9000, although price will have to contend with former-support-turned-resistance at 0.8850. Be mindful of the news events for the remainder of the week and trade what you see, not what I think.

Lydia Idem Finkley

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