A slowing Eurozone versus Brexit uncertainty is the fundamental driver behind the EUR/GBP. The back-and-forth in regards to a Brexit deal has yanked the British Pound in both directions while the Eurozone is printing worse than expected economic data while the ECB is easing monetary policy and the EU is being slapped with tariffs. Longer term, this points towards a weaker EUR/GBP as the majority appear to have mispriced the negative impact of even a WTO Brexit on the fragile Eurozone economy. The most recent announcement that there is essentially no chance of a deal by next weak has sparked a short-covering rally in this currency pair.
The Force Index, a next generation technical indicator, confirmed the breakout series in the EUR/GBP which took it through its entire Fibonacci Retracement Fan sequence; this turned it from resistance to support. After reaching the bottom range of its resistance zone, bullish momentum contracted and the Force Index started to reverse. While it currently remains above its horizontal support level and above its ascending support level, as marked by the green rectangle, the rise in bearish sentiment makes this technical indicator vulnerable to a breakdown. Given the strong advance as price action advanced, a full reversal back into its support zone could follow. You can learn more about the Fibonacci Retracement Fan, the Force Index and the Support Zone here.
After price action was rejected by its short-term resistance zone, located between 0.89991 and 0.90384 as marked by the red rectangle, another attempt at a breakout may follow. This is normal as bears will square off with bulls at key levels and forex traders will have plenty of Brexit related commentary to digest in the short-term. Hungary may emerge as a White Knight for UK Prime Minister Johnson and veto a Brexit extension request, but at this point they remain rumors. Forex traders should closely monitor the Force Index, as a breakdown is expected to lead to a sell-off in the EUR/GBP.
Another level to monitor is the intra-day low of 0.89584 which marks the current low of the rejection in this currency par by its short-term resistance zone. A move below it should take the EUR/GBP into its descending 61.8 Fibonacci Retracement Fan Support Level. The next support zone is located between 0.87859 and 0.88349 as marked by the grey rectangle, the 50.0 Fibonacci Retracement Fan Support Level has just moved below this zone. Bearish momentum is slowly building up and more Brexit developments will act as a fundamental catalyst in either direction, volatility is expected to increase. You can learn more about a Breakout, a Breakdown and the Resistance Zone here.
EUR/GBP Technical Trading Set-Up - Breakdown Scenario
Short Entry @ 0.89750
Take Profit @ 0.87850
Stop Loss @ 0.90500
Downside Potential: 190 pips
Upside Risk: 75 pips
Risk/Reward Ratio: 2.53
In the event that the Force Index will recover from its double support level as price action is attempting a breakout above its short-term resistance zone for a second time, the EUR/GBP could extend its advance. The next long-term resistance zone is located between 0.90982 and 0.91482. A breakout above this zone, even with short-term fundamentals driving price action higher, is highly unlikely. Any potential advance should be considered a great long-term selling opportunity.
EUR/GBP Technical Trading Set-Up - Breakout Scenario
Long Entry @ 0.90600
Take Profit @ 0.91250
Stop Loss @ 0.90300
Upside Potential: 65 pips
Downside Risk: 30 pips
Risk/Reward Ratio: 2.17