The EUR/GBP looks to have broken trendline support dating back to mid-February, after a false break last week saw the pair pull back into the formation. With the euro weakness seen in recent days, the pair is likely to continue moving lower with a close below this level, with the 76.4% Fibonacci extension taken from the May 5th and July 1st crests acting as our confirmation for further weakness moving forward. The 20, 50, and 100-day moving averages also seem to be converging, with the slope of the 20 & 50 day averages steepening in North American trade. RSI also continues to move sharply lower after failing to break above the 50-level earlier in the week. Accordingly, our bias on the scalp will be weighted to the downside.
A 30min chart shows the pair breaking below trendline support of the ascending channel dating back to July 17th. Preferred short entry targets are held at 0.8765 backed by the 23.6% Fibonacci retracement taken from the July 1st high and the July 18th low at 0.8795 and 0.8820. Support profit targets are eyed just above the 38.2% Fibonacci extension taken from the July 1st and 26th crests at 0.8740 followed by 0.8720 and the 50% Fib extension at 0.8697.
With a 2-hour average true range of just 16.06, we look further out to a 4-hour ATR which provides offers a read of 26.06. Therefore, profit targets on said should be between 16-21 pips depending on entry and may take longer to obtain. Note that the scalp will not be active until a rebound off of resistance target 1 at 0.8740 or a confirmed break below the 38.2% Fibonacci extension at 0.8740. Once the scalp is active the levels will remain in play until such time when either of the topside/bottom limit targets are compromised.
Key Thresholds
A daily downward sloping RSI of 40.33 suggests risk to the pair remains to the downside after reaching as high as 68 in early July. We reckon a breech above the topside limit at 0.8820 negates the bearish bias on the trade with such a scenario eyeing topside break-targets at 0.8845, the 50% Fibonacci retracement at 0.8880 and the 0.89-figure. Likewise a break below the bottom limit at the 0.8697 risks further losses for the euro with downside targets eyed at 0.8680, the 61.8% Fibonacci extension 0.8655 and 0.8610.
Reference Values
Notwithstanding significant swings in markets sentiment, event risk for the trade rests primarily with the euro with German retail sales and the Eurozone CPI estimate on tap for tomorrow. Consensus estimates call for June retail sales to fall by 1.6% y/y, down from a previous gain of 2.2% y/y. contrastingly the month on month figure is expected to print at 1.7%, up from a previous decline of 2.8% m/m. Inflation estimates will also be closely eyed by investors with the print seen holding steady at 2.7% y/y.
The UK presents its own event risk tomorrow highlighted by the June mortgage approvals and net consumer credit. Both figures are expected to print higher at 46.0K and 0.3B respectively. A stronger than expected print would support our bias while a significantly weaker read could upset this particular setup.
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