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Consider Shorting the EUR/GBP

The EUR/GBP has been in a bullish correction since the 0.7014 low on the year. As it approaches 0.74, I am proposing that it might be a good time and price to fade the pair.

The 4H chart shows the bullish channel EUR/GBP has been in since the 0.7014 low. In this time-frame, the market does indeed look like it is reversing. However, based on the current policy stance of the ECB vs. the BoE, we should assess this rally as a bullish correction against a downtrend that has been in play since at least August 2013, from 0.8770.

EUR/GBP 4H Chart 3/27

(click to enlarge)

With the prevailing bearish market in mind, let’s take a look at the daily chart, where my proposal comes from. In the daily chart, we can see that price has hit a falling trendline coming down from the 0.80 high in December 2014. We saw that traders respected this line during the 3/26 session and formed a bearish engulfing candle. Also note the respect of the 50-day SMA. Furthermore, the RSI came close to 60 and held under it. This shows maintenance of the bearish momentum.

EUR/GBP Daily Chart 3/27

(click to enlarge)

Now, let’s say the market is still in consolidation, we can still anticipate a bearish attempt at least towards the 0.7215 area. Going back to the 4H chart, we can see that this is a support/resistance pivot, and the bottom of the 200-, 100-, and 50-period SMA cluster. A hold above this level could keep EUR/GBP in bullish correction further. A break below 0.72 however should open up the bearish continuation scenario with the 0.71 handle and the 0.7014 low in sight.