EUR/GBP at Critical Support: Is a Move Higher on the Horizon?The EUR/GBP pair has been in a persistent downtrend since February 2023, reflecting the strengthening of the Pound against the Euro. However, after more than 1.5 years of decline, the pair is beginning to show potential signs of exhaustion on the daily chart. Recently, an “Engulfing” candlestick pattern has formed, suggesting a possible reversal or at least a significant correction before any further continuation of the downtrend. This brings forth two potential scenarios:
Scenario 1: Immediate Upside
One possible scenario is that EUR/GBP begins to rise from its current position near 0.8330, without a significant pullback. The bullish engulfing pattern formed over the past two days may indicate buyer interest, suggesting that the pair has found critical support.
Possible Buy Entry:
An immediate buy entry could target the resistance level at 0.8440 as the final objective.
Stop Loss:
A suitable stop loss could be placed just below the support level on the daily chart.
Scenario 2: Retracement Before the Rally
Another possibility is that EUR/GBP retraces to the 0.8297 region, which corresponds to the 50% Fibonacci retracement of the recent upward movement, before continuing higher. This type of retracement is common and can significantly enhance the risk/reward ratio of the trade when managed effectively.
Possible Buy Entry:
A buy entry could be initiated if the price reaches the 0.8297 level, targeting the previous resistance at 0.8440.
Stop Loss:
A stop loss positioned below the support level on the daily chart would be prudent to guard against an unexpected break of support.
Combining the two possibilities.
Given the uncertainty around which entry point will yield the best results (immediate or after a retracement), a strategic approach could be to enter with a smaller lot at the current price and follow up with additional entries if the price retraces to the 50% Fibonacci level.
By doing so, if the price begins to rise immediately, you can take advantage of the uptrend with a smaller position. Conversely, if the price does retrace, you would already have the full-sized position ready to take advantage of a better risk/reward scenario.
Alternative Scenario: Breaking Support
It is crucial to acknowledge that, despite the pair being at a significant support level on the daily chart, there remains a risk of a breakdown below this level. If the support at 0.8263 is breached, the bullish scenario would be invalidated, and we could see a continuation of the downtrend consistent with the prevailing movement since February 2023.
Possible Short Entry:
Traders might consider entering short following a confirmed break below 0.8263, targeting the 0.8100 region, which represents the next important support level on the daily chart.
The EUR/GBP pair is at a pivotal juncture, displaying signs of exhaustion after an extended downward trend. The forthcoming price movements—particularly around the current support zone—will be crucial in determining whether we witness a significant correction or a continuation of the decline. Traders should remain alert for confirmation signals before making any trading decisions.
Disclaimer:
74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
