After a multi-year run higher, the EUR/GBP topped out in October 2016 and has been trending lower ever since.
In the daily chart below, you will notice two areas that I refer to as event areas (areas where a major price move originated from) that formed as this market changed direction. Note, this market recently experienced a ‘vacuum’ back up to test these ‘event areas’ and sold-off from there today in the wake of the British PM’s speech outlining her plans for Britain’s exit from the European Union.
We now have a confluence (a coming together of supporting evidence) of multiple factors that support our current downward bias under the 0.8850 key resistance area:
An obvious strong resistance area at the previously mentioned event areas which are now containing the market, and an approximate 50% retracement of the initial swing lower, both of which we can see on the chart below.
For sellers, it all depends on the ‘line in the sand’ at 0.8850; if price is contained below that level, we expect the market to trade lower. We are looking to be sellers on any temporary strength, and we would hold sell positions until a strong break or close back above the 0.8850. Our downside target is down near previous support around 0.8340 initially, possibly lower if the bears remain in control.
This article was written by Nial Fuller. Nial is a highly regarded professional trader and author. He is the founder and CEO of Learn To Trade The Market, the world’s foremost trading education resource.