(Chart courtesy of FX Solutions' FX AccuCharts. Price on 1st pane, MACD Histogram on 2nd pane; uptrend lines in green; horizontal support/resistance lines in yellow; chart pattern in dotted magenta; 50-period simple moving average in light blue.)

4/16/2008 EUR/GBP How much higher can the euro climb against sterling? Price action on the EUR/GBP daily chart, as shown, displays the sheer magnitude of the steep ascent that has occurred within the past half year or so. Parallel uptrend lines (represented on the chart in green) and horizontal support/resistance lines (in yellow) outline the steeply-angled uptrend with continual breakouts of numerous resistance levels. From a purely technical point of view, steepness of a trend is inversely related to its sustainability. In other words, a trend angled this severely, especially on a cross like EUR/GBP, will be hard-pressed to sustain itself for much longer. This is not necessarily to say that a top is immediately imminent, but the pair is hinting at a possible approach of a correction, or at least a consolidation. The current price-oscillator divergence (represented by the two magenta lines) seems to be supporting this view. While price has recently printed higher highs, the MACD Histogram has made lower highs within the same time period. This divergence indication hints at an impending retreat from the new highs. A breakdown of the rightmost uptrend line (in green) would confirm this retreat.

James Chen

Chief Technical Analyst

FX Solutions

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