Forex Technical Update
Strong Rally vs. Trendline: The EUR/GBP has been bullish the last 5 straight weeks, and was bullish 7 out of the last 8 weeks. This persistent bull run is now challenging the bearish mode the market has been in since June 2011. When you look at the weekly chart, you see that the declining trendline since the June 2011 high of 0.9081. is being tested by the recent rally. A break above reflect a game changer in this pair, but first with a target/resistance at 0.8155 to monitor.
Key Pivot: The daily chart shows a market in a second swing (3rd wave) from the 0.7756 low to the current high around 0.8110. If this is wave 3 in Elliott Wave terms, then a throwback should not break below 0.7960, which was a key pivot anyway.A break below 0.7960 does not immediately scream bearish market, but it does make the bullish market doubtful.
Momentum: The daily RSI is above 70, which reflects a near-term overbought condition, but is really a sign of bullish momentum going forward in the medium term. If the market is to remain bullish toward 0.8155, the RSI should not push back below 40, preferably staying above 50.
Above 0.8155: A break above 0.8155 not only clears the trendline but also breaks above a previous consolidation resistance, from June 2012, and also breaks above the 200-day SMA, which would indeed reflect a major reversal developing. In this outlook, the next short-medium term resistance is near the 0.8260 area, near 38.2% retracement, and was where the market stalled for a little more than a week in April.
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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