After the impressive growth that the euro/pound cross-rate showed last week, the current five-day trading at the time of writing does not give an idea of the obvious direction of the price.
It would seem that the single European currency should have been supported by the news that Germany and France agreed to create a 500 billion euro bailout fund for countries affected by COVID-19. In turn, the British currency could be pressured by the news that the Bank of England is considering the introduction of negative interest rates. Even despite today’s weak data on retail sales in the UK, the pound paired with the single European currency feels quite confident and even signals a possible strengthening.
This signal was yesterday’s daily candle “shooting star”, which appeared under a strong technical level of 0.8998, that is, directly under the most important psychological mark of 0.9000. In itself, the reversal model of candle analysis, and even formed under such a significant mark, in theory, can not remain unnoticed by market participants. And indeed, at the moment of writing this review, the euro/pound cross shows a decline, although it is still quite modest.
If the downward trend continues, the pair will fall to the previously broken upper border of the Ichimoku indicator cloud, which passes at 0.8930. Closing today’s trading within the cloud will create technical prerequisites for continuing the downward trend. However, it is quite possible that the upper border of the cloud will be strong support and will turn the euro/pound up.
On the daily chart, the current situation is not quite clear, but given yesterday’s reversal candle, I am more inclined to assume a downward scenario.
After the quote stopped right below the mark of 0.9000, the probability of a correction, or perhaps a reversal of EUR/GBP, is also seen in this timeframe. I stretched the Fibonacci grid to the rise of 0.8670-0.8998 and suggest that you monitor the behavior of the price near the first two pullback levels: 23.6 and 38.2. If bullish models of Japanese candlesticks appear here, it is highly likely that the EUR/GBP correction can be considered completed and the bullish trend can be expected to resume. This means that in this situation, you need to prepare for cross purchases.
A deeper correction and departure below the strong technical level of 0.8860, where the 89 exponential moving average is also located, will most likely signal the presence of serious sellers.
The hourly chart shows an even more pronounced upward trend, but the pair has stalled between 50 MA and 89 EMA. I believe that the current direction of the euro/pound will depend on the true breakdown of one of these moves.
Since the current situation is uncertain, I will indicate recommendations for both scenarios. I recommend considering purchases after updating today’s highs at 0.8970, but with small goals. Remember that the important mark of 0.9000 is higher, and it is not necessary to move the position to Monday. Purchases at more attractive prices are considered risky, starting from the current values of 0.8949.
To open sales, a bearish candle must appear at 50 MA. Another option for opening short positions will be a breakout of the support of 0.8940. In this case, we sell either at the breakout level or after its breakdown on the pullback. That’s all for now.
The material has been provided by InstaForex Company – www.instaforex.com