eurgbp faces the risk of a medium term decline ahead of boe 1821362016

Today’s main focus on the marketplace will be the Bank of England’s monetary policy announcement that is out later at 1100 GMT. Prior to today […]

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By :  ,  Financial Analyst

Today’s main focus on the marketplace will be the Bank of England’s monetary policy announcement that is out later at 1100 GMT.

Prior to today much awaited BOE’s Monetary Policy Committee meeting, Governor Mark Carney has already dropped “hints” through public announcements after the vote on Brexit that monetary stimulus is required to steam any potential economic shock that arises from Brexit.

Further monetary stimulus can be a cut on the current benchmark interest rate which is already a historical low of 0.50% since March 2009 or more quantitative easing through is Asset Purchase Facility now set at ceiling of GBP375bn.

On the average, economists surveyed by major media outlets expect the BOE to cut its benchmark interest rate by 25bps to 0.25% with mixed expectations on further quantitative easing at this juncture.

Let us take a look at the EUR/GBP cross from a technical analysis perspective which has received a lot flows in the post Brexit environment.


EURGBP (monthly)_14 July 2016

EURGBP (weekly)_14 July 2016

EURGBP (4 hour)_14 July 2016


(Click to enlarge charts)

Key elements

  • After the landmark vote on Brexit that occurred on 24 June 2016, the EUR/GBP has rallied strongly and broke above former long-term descending channel  in place since December 2008 high of 0.9804 now turns pull-back support at 0.8068 (see monthly chart).
  • The long-term weekly RSI oscillator has traced out a bearish divergence signal on its overbought region which suggests that the upside momentum of the current multi-week’s rally from 24 June 2016 low is waning. These observations highlights the risk of a medium-term (multi-weeks) correction to retrace the recent steep rally seen in the EUR/GBP cross.
  • Based on the Elliot Wave Principal and fractal analysis, it is likely that the EUR/GBP is undergoing a bullish impulsive wave structure/cycle of a primary degree from July 2015 low of 0.6937, labelled as (1), (2), (3), (4), (5) of A. Till to date, it has potentially completed the corrective wave (4) at the 26 May 2016 low of 0.7579 and the up move wave (5) is still in progress.
  • With reference with aforementioned element, the up move wave (5) can be broken down into smaller degree/fractals, labelled as 1/, 2/, 3/, 4/, 5/ of an intermediate degree. It is likely that the up move wave 3/ has ended at recent 06 July 2016 high of 0.8627 and the EUR/GBP is undergoing the corrective/down move wave 4/ with expected downside targets/supports set at 0.8230 and 0.8130/8068 which are defined by multiple Fibonacci clustering zones and also confluences with the pull-back support of the former long-term descending channel (see 4 hour chart).
  • The shorter-term 4 hour Stochastic has just exited its overbought region and hitting an extreme overbought level. These observations on momentum reinforce the medium-term pull-back/consolidation scenario.
  • The key medium-term resistance to watch is set at 0.85120 which is defined by a confluence of elements, the former minor swing low areas of 07 July/08 July 2016, the descending trendline from the 06 July 2016 high and the 61.8% Fibonacci retracement of the most recent decline from 06 July 2016 high to yesterday’s low of 0.8298.

Key levels (1 to 3 weeks)

Pivot (key resistance):  0.8512

Supports: 0.8230 & 0.8130/8068

Next resistance: 0.8710/8740


Technical elements are now in favour of a potential short to medium-term pull-back/consolidation for the EUR/GBP. As long as the 0.8512 pivotal resistance is not surpassed, the cross pair is likely to stage a decline to target the supports at 0.8230 and even 0.8130/8068 before another potential upleg materialises.

However, a clearance above the 0.8512 pivotal resistance may invalidate the preferred pull-back scenario for a direct rise towards the next resistance at 0.8710/8740.

Charts are from eSignal


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