EUR/GBP: Two Potential Scenarios to Trade This Week

As it stands, there are two interpretations of the recent sideways price action – one bullish and one (potentially) bearish:


Yesterday, we took a technical look at EUR/USD, concluding the pair’s ever-tightening range around 1.0900 was approaching a potential breaking point in near future. Today, we wanted to key in on the second most-traded euro cross, EUR/GBP.

Like EUR/USD, EUR/GBP has spent the last six weeks constrained to a relatively tight range, in this case between support at 0.8680 and resistance up at 0.8860. As the chart below shows, that resistance level represents the 23.6% Fibonacci retracement of the entire mid-March to late-April drop:

Source: TradingView, GAIN Capital

As it stands, there are two interpretations of the recent sideways price action – one bullish and one (potentially) bearish:

1)     It’s merely rangebound trade, reflecting consolidation and balance between buyers and sellers. Under this interpretation, rates may be more likely to break lower, in line with the previous trend.

2)     The pair is forming a “rounded bottom” pattern, showing a shift from selling to buying pressure and potentially opening the door for a near-term rally toward at least the 38.2% Fibonacci retracement near 0.9000.

Of course, readers are welcome to layer on their preferred technical indicators to help handicap which scenario is more likely, but the next tradable breakout may ultimately hinge on this week’s economic data. The UK is scheduled to release its preliminary estimate of Q1 GDP tomorrow at 7:00 GMT, followed by a webinar presentation from new BOE Governor Andrew Bailey on Thursday at 11:30 GMT and the release of German Q1 GDP at 7:00 GMT on Friday.

If these data points show more optimism around opening the economy on one side of the English Channel or another, that may be the catalyst to finally take EUR/GBP out of its established range!

More from Forex

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account