The area between 0.8390 – 0.8400 has been an important price pivot zone in the past, acting several times as support throughout 2013 and as resistance in late 2013 and 2014.
After testing 0.8400 last week EUR/GBP dropped 70 pips, only to quickly recover those losses. Seeing how the pair failed to dip below the most recent swing lows from the previous two weeks, the bullish momentum looked strong and many traders were preparing for a run over 0.8400.
The second test of the resistance has been met with a stronger bearish pressure, pointed out by a bearish engulfing pattern on the 4H timeframe while the daily stochastic was in the overbought area.
0.8330 is the first support and the current target for sellers. It should be noted that EUR/GBP is in a range between 0.8330 and 0.8400, at least technically, having made two swing highs and two swing lows at nearly identical levels. The second support further down, at 0.8285, marked by the 200 simple moving average on the 4H timeframe, is a valid target only after the range is invalidated towards the downside.
If this short term range will first break above 0.8400 and the 200-day MA, the next resistance lies at 0.8463, a very strong confluence formed by the 50% fibonacci retracement between the 0.8768 – 0.8157 and a strong pivot zone confirmed five times in the last year.
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Prepared by Alexandru Z., Chief Technical Strategist at Capital Trust Markets