steve.jarvis's picture

EURGBP bouncing from the base of 6 year bear channel - but for how long?

EUR/GBP has really fallen away over recent months, taking out the (blue) 120 month (10 year) moving average, key lows established in 2008 & 2012 at .7695 & .7758 and the (purple) 15 year uptrend line connecting the 2000 & 2007 lows.  However, the base of the (orange) 6 year bear channel has so far held firm, with a bounce now under way from .7015.  The question, how significant is this low?

              Chart below - EUR/GBP Monthly chart with 12, 60 & 120 month (1, 5 & 10 year) moving averages.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At this stage, the .7015 low is not expected to mark a key turning point for EUR/GBP.  The MACD indicator retains a bearish structure and the recent slide took out the 76.4% Fibonacci retracement of the 2007-2008 .6537-.9801 advance.  The expectation at this stage is for former strong support around the .7757-.7768 area (2012 / 2014 lows) to now revert to solid resistance on the latest recovery phase.  Potentially the rally may not even get anywhere near that area - key interim resistance is spied at February's .7591 lower top, almost spot-on the former 15 year uptrend line.  

So does .7015 marks a key low?  We think not.  We see the latest bounce as corrective to leave a key lower top over coming weeks, followed by a further decline in the direction of .6702 (100% downside projection from the 2013-2014 .7757-.8812 recovery) and potentially to retest and break the 2005 / 2007 lows at .6613 / .6537 by year-end.  Longer-term, losses in the direction of the May 2000 all-time traded low .5684 are not ruled out.

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