EURGBP approaching a potential sell area

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EURGBP, Weekly

ECB’s Draghi said last week that global monetary policies will diverge for a while. The central bank head said the Fed hike signaled the improving economy and was “flawlessly executed”. He added that its too early to say that sentiment has changed, and repeated yesterday’s comments that he is concerned about the outlook for inflation and determined to reach the price-stability mandate. Draghi stressed again that the ECB has “plenty of instruments” as well as “the determination, and the willingness and the capacity of the Governing Council to act and deploy these instruments”.

This weakened euro against sterling which has been strong after BoE MPC member Weale sounded relatively hawkish on Thursday in saying that the tightening labour market should drive up wages. EURGBP hit a weekly resistance area (0.7738-0.7793) last week and turned lower but the decline accelerated after Draghi promised there would be more QE in March. This market had been overbought as per Stochastics oscillator which is now tilting lower and signaling sell. The nearest weekly support level is at 0.7491. Last week’s close will was inside the upper Bollinger Bands which is yet another signal to sell this market.

EURGBP, 240 min

The pair has rallied towards an area where 30 and 50 period moving averages coincide near 0.7633 level. This level coincides also with the proximity of 23.6% Fibonacci level while the Stochastics oscillator is about to enter into overbought territory.

Conclusion

EURGBP has failed to penetrate a weekly resistance, has fallen below a bullish price channel and has some way to go to the nearest major support. Therefore, we are looking to sell this rally inside the sell area (0.7615 – 0.7650) in order to obtain smaller risk and a better reward. If EURGBP rallies to my sell area (0.7615-0.7650), we look for sell signals to enter short with targets at: 0.7533 (T1) and 0.7480 (T2).

 

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Janne Muta

Chief Market Analyst

HotForex

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