EUR/GBP’s corrective fall extended to as low as 0.8604 last week and took out 38.2% retracement of 0.8402 to 0.8786 at 0.8639. The decline was deeper than expected but the cross quickly recovered after drawing support from 55 day EMA. The development mixed up the near term outlook a bit. But overall, there is no change in the view that price actions from 0.8303 are forming a corrective pattern, as the second leg of the correction from 0.9304. The question is what exact pattern it’s turning out to be. Decline from 0.9304 is expected to resume later.
Initial bias in EUR/GBP stays neutral this week first. With 0.8699 minor resistance intact, deeper decline is mildly in favor. Below 0.8604 will target 61.8% of 0.8402 to 0.8786 at 0.8549 and possibly below. In that case, we’ll look for support above to 0.8402 to bring another rebound before completing that correction from 0.8303. ON the upside, above 0.8699 will turn bias back to the upside for 0.8786. Break will target 61.8% retracement of 0.9304 to 0.8303 at 0.8922 to finish the pattern from 0.8303.
In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we’d expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).
In the long term picture, firstly, price action from 0.9799 is seen as a long term corrective pattern and should have completed at 0.6935. Secondly, rise from 0.6935 is likely resuming up trend from 0.5680 (2000 low). Thirdly, this is supported by the impulsive structure of the rise from 0.6935 to 0.9304. Hence, after the consolidation from 0.9304 completes, we’d expect another medium term up trend to target 0.9799 high and above.
