The EUR/GBP pair rallied during the session on Wednesday, but as you can see failed to keep most of the gains, pulling back to form a shooting star. The fact that this market is in a downtrend of course isn’t lost on me, and I believe that we will more than likely see a continuation of that pressure to the downside. With that, a break of the bottom of the candle should send this market testing the lows again near the 0.79 handle, and possibly breaking down to my longer-term target of the 0.75 handle at that point in time.
On top of that, the fundamentals favor a continued fall in this pair as the European Central Bank is almost certainly going to continue monetary operations in order to be extra accommodative. On the other side of the English Channel, we have the Bank of England that be dealing with an economy that is of course improving. Interest rates in the UK have been rising slightly as of late, and that of course drives more money into England.
The 10 – 20 system shows sell.
The most common trading system that I can think of is the 10 and 20 exponential moving average crossover system. Looking at this chart, you have the red line, which of course is a 10 day exponential moving average, or the faster average. Ultimately, you have the blue line which is the 20 day exponential moving average.
As you can see, we certainly are in a downtrend, and the exponential moving average is only confirm this. The fundamentals also line up nicely, so quite frankly I don’t see any reason why I should doubt that this market continues to drift lower. On top of all that, I see that there is a significant amount of resistance near the 0.80 handle, meaning that even if we get a bit of a rally here, I would fully anticipate to see sellers stepping back into the market and pushing it back down. In the end, I believe we head to the 0.75 level, although this market is known for taking it’s time.