The EUR/GBP pair initially tried to break out during the session on Friday, but struggled at the 0.72 level again. By doing so, the sellers stepped in and took control, pushing this market much lower. With this, we formed a nice-looking shooting star which of course is a very bearish sign. This of course means that the sellers should continue to run the show, and with this I am is most certainly bearish. I think that the market then goes down to the 0.70 level, which was the most recent support level.
On the other hand, if we break above the top of the shooting star that could mean that the move to reach the 0.74 level could be on. However, it is against the overall trend, so it is not necessarily the move that I want to be involved in. I much prefer shorting this market as the Euro continues to be soft overall, and the British pound has taken off to the upside.
Relative strength
Remember, it doesn’t really matter if one or both currencies are starting to gain against the US dollar, it just comes down to the speed and momentum that is built up in the value of this pair currencies. While the Euro strengthened against the US dollar over the last couple of sessions, the truth of the matter is that the British pound has broken out. With this, the British pound should continue to be the stronger of the two currencies, and therefore it makes sense that we break down.
Also, you have to keep in mind that the trend has been to the downside for some time now, so it makes sense that we continue. The 0.70 level below is massively supportive, and has shown quite a bit of strength. Because of this, I believe that we are more likely to reach towards that area then break out to the upside. I continue to sell short-term rallies and a break below the bottom of the range for the session on Friday.
