EUR/GBP Technical Analysis: Short Trade Setup Sought (27/08/15)
The Euro paused to consolidate below the 0.74 figure against the British Pound after recovering to the highest level in close to four months. The pair launched a sharp move higher as evaporating risk appetite across financial markets fueled an unwinding of stretched short-EUR positioning. Indeed, the correlation between EURGBP and the Euro Stoxx 50 index of blue-chip Eurozone shares is now 0.94 on rolling 20-day studies.
Near-term support is at 0.7291, the 23.6% Fibonacci expansion. Breaking below this barrier on a daily closing basis opens the door for a test of the next downside inflection point at 0.7210, the 38.2% level. Alternatively, renewed upside momentum that brings prices through resistance marked by the June 4 high at 0.7385 clears a path for a move to challenge the May 7 top at 0.7482.
On balance, the dominant long-term EURGBP trend favors the downside. This suggests the recent recovery is corrective, painting it as an opportunity to enter short at a more compelling level rather than a bullish reversal with follow-through to buy into. With that said, prices are too close to support to justify pulling the trigger on a trade from a risk/reward perspective. As such, we will stand aside for now until an actionable setup presents itself.