EUR/GBP Weekly Outlook

By Roger Baettig | May 05 2012 4:01 PM

EUR/GBP's down trend continued last week and reached as low as 0.8094. There is no sign of bottoming yet and such down trend should continue to 0.8067 support and then next projection level at 0.8013. Based on current momentum, 0.8 psychological level would likely be breached in near term. On the upside, break of 0.8197 resistance is needed to signal short term bottoming. Otherwise, outlook will remain bearish even in case of recovery.

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In the bigger picture, long term consolidation pattern from 0.9799 is still in progress with fall from 0.9083 as the third leg. Decline from 0.9083 is still in progress and would target 61.8% projection of 0.9799 to 0.8067 from 0.9083 at 0.8013 (which is close to 0.8 psychological level). After all, we'd expect strong support inside 0.7693/8186 support zone, possibly near to 61.8% retracement of 0.6535 to 0.9799 at 0.7782 to contain downside to finish off the consolidation. On the upside, break of 0.8505 resistance will argue that fall from 0.9083 is finished. In that case, EUR/GBP could have either started another leg inside the consolidation pattern, or resumed the larger up trend.

In the long term picture, long term up trend from 2000 low of 0.5680 shouldn't be over yet and the choppy fall from 2008 high of 0.9799 should be a correction only. We'd expect such correction to be contained by 0.7963/0.8186 support zone and bring up trend resumption. Rise from 0.5680 is still expected to extend beyond 0.9799 high eventually.