Euro/pound: Will the central banker winds shift northward?

Traders riding the EUR/GBP ship are about to enter a period of rough seas.

After experiencing a steady southerly tailwind over the past four months (translation: the EUR/GBP (CME:RPU14) has trended consistently lower), the heads of both the ECB and BoE will take the stage to discuss monetary policy in the next 24 hours. My colleague Kathleen Brooks cogently summarized the major issues that Mario Draghi and Mark Carney will be discussing earlier today, but we wanted to take a moment to set the technical stage for the EUR/GBP as well.

The EUR/GBP has been in a consistent downtrend since peaking at .8400 in mid-March, and the pair recently dropped to a new 22-month low following Mario Draghi’s last speech earlier this month. Since then, rates have bounced back a bit and critically, the RSI formed a clear bullish divergence at the two most recent lows.

This technical development shows declining selling pressure on the most recent thrust lower and is a warning sign of a possible reversal. Similarly, the MACD indicator is starting to turn higher, suggesting that the bearish momentum may be waning.
 


Source: FOREX.com
 

Given these technical signs of hesitation, EUR/GBP sellers will want to keep a close eye on the pair over the next 24 hours. Depending on the tone of Draghi and Carney’s speeches, as well as a plethora of economic data releases on the calendar, the downtrend may be in the most danger since its formation in March.

For this week, all eyes will be on the .7980-.8000 resistance area; If that level is eclipsed, the pair may quickly bounce back to .8100. However, as long as rates do not break definitively above .8000, the sellers will maintain the upper hand for a possible retest of the 2014 trough at .7915 or even the July 2012 low at .7755.

About the Author
Matt Weller

Senior Technical Analyst for FOREX.com. Matt has actively traded various financial instruments including stocks, options, and forex since 2005. Each day, Matt creates research reports focusing on technical analysis of the forex, equity, and commodity markets. In his research, he utilizes candlestick patterns, classic technical indicators, and Fibonacci analysis to predict market moves. Matt is a Chartered Market Technician (CMT) and a member of the Market Technicians Association. You can reach Matt directly via e-mail (mweller@gaincapital.com) or on twitter (@MWellerFX).

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