Trader, analyst and instructor with a 6-year experience

EUR/GBP: buyers perked up

By Kira Iukhtenko, FBS

This week we are observing a bullish correction in EUR/GBP. The cross rebounded from a 2-year low of $0.7910 hit on Monday to $0.7965 on Thursday. The 0.7910 mark is the bottom of the 12-month bearish channel. The market evidently feels the need of a technical correction: weekly RSI still sits below the key 30 level. What’s more, we see a strong MACD divergence on the daily chart.

The correction was triggered by rather weak UK economic data released this week, including an unexpected slump in manufacturing output and weak Halifax HPI. Thursday added more reasons for concerns: we’ve seen a larger-than-expected UK trade deficit for May. All these news decrease market expectations of a sooner rate hike in Great Britain.

However, room for bullish recovery of the cross is limited.  The market moved up this week, but we've seen rather uncertain bullish candles with long shadows and small bodies. Markets avoid buying the euro as they await more monetary stimulus from the ECB. Data on Thursday showed that output in France, Italy and Holland declined in May, confirming the euro zone's economy is far from being strong.

Given the oversold market conditions, there is a chance for the pair to retrace higher. Important resistance lies at 0.8030 and 0.8150. However, we expect the bullish moves to be contained by the 0.8000/8030 area and recommend using EUR/GBP growth as selling opportunities. The next bearish target is seen at 0.7750 - this is the 2012 low. 

Chart. Weekly EUR/GBP


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