Key Points:
- Price action reaches the upper channel constraint
- Key reversal zone has been reached
- Bearish Divergence evident on the RSI Oscillator and MACD
The EUR/GBP has been trending within a fairly reliable channel over the past few months as the pair continues to feel the impact of risk around the Brexit. As expected, price action has been trending steadily higher since it touched the lower channel in late April. However, price action could be reaching the extent of its rally given that the top of channel has been reached in the past few days.
A quick review of the daily chart demonstrates the dilemma that is currently facing the pair as price action's upward direction appears to have been largely capped by the top of the channel. Subsequently, the past few days have seen price turn sideways in direction and take a more consolidative shape. However, there are some negative factors building with the RSI Oscillator appearing to show some divergence as the indicator trends steadily lower whilst price action retains its current position. In addition, the MACD is also displaying some divergence with the key indicator taking a very definite downward tilt.
Subsequently, there are plenty of technical factors to suggest that we might be seeing the first stage in a bearish move for the pair. This isn’t surprising given that price action is presently sitting in a key area of resistance and especially considering the aforementioned divergent indicators. Additionally, Friday's trading session has now seen price action break below the bullish trend line and we are all but ready to see a sharp decline in the coming days.
Ultimately, the most likely scenario for the EUR/GBP is price action stalling around the 0.8780 mark during the remainder of Friday’s session before commencing a steady decline back towards 0.8648, and 0.8476 in extension. This would relieve significant pressure upon the oscillators as well as allow price action to follow the divergence lower. However, keep a close watch on any potential volatility from the UK GDP figures which are due out in the coming session. Most estimates put the result somewhere in the range of 0.2% for the quarter but be wary of any deviations.