The EUR/GBP has been trending up within the confines of its bullish channel for a while and some now believe the pair is running short of momentum. While it is true that a number of attempts to break the February high have been met with failure, I believe there is still some upwards mobility to capitalise on.
Firstly, the EUR/GBP has formed a well-defined bullish channel which now brings the pair towards the 2014 December high of 0.7844. This would explain why the last few runs at a new high have been met with some fairly stiff resistance. Some may argue that this is indicative of an exhaustion of buying pressure and a potential reversal is imminent. However, I would argue the contrary as the pair has entered oversold territory as it nears the downside of the channel. Subsequently, moving into oversold should help to prevent a downside breakout as we move forward.
Additionally, the 100 day EMA on the D1 chart (pink) is confirming the upwards trend and signalling a possible continuation. Whilst the gradient has dropped back in recent weeks, there is still a demonstrable bullish trend in the chart. Looking at the 100 day EMA on the H4 chart reveals that the moving average has been acting as dynamic support while the pair moved higher. Now that the EUR/GBP is intersecting this dynamic support, we should see the pair start to climb back to the centre of the channel and test resistance.
Subsequently, we can combine a trend line (red) with a Fibonacci retracement and see that the pair should intersect the 161.8% retracement level at 0.8109. This is where a take profit may be handy as it represents the next level of major resistance once the 0.7927 resistance level is broken. I would be aiming to enter the market just slightly above this 0.7927 level, potentially by a slightly higher margin than usual as a result of the GBP’s volatility. With the Pound’s volatility in mind, the 50.0% Fibonacci retracement level provides a suitable stop loss should things go awry.
Additionally, with a slew of fundamental indicators being released this week, there is no shortage of reasons for traders to be active. Exacerbated by the palpable fear over the Brexit drama, the outcomes of this week’s economic results will likely generate some significant buying and selling pressure. The poor performance of recent UK results has already fuelled a significant degree of past upward momentum. Similar momentum is likely should the UK be unable to post strong GDP results this week.
In the end, the pound is far from being in the clear and the embattled currency could still lose more ground against the euro. Jumping into the fray now could net some nice returns as the looming Brexit referendum helps to keep uncertainty around the pound alive. Be aware of any surprise results, as an excellent UK GDP result or higher UK inflation pressures could start to drive the pair back down again.
