EUR/GBP looks weaker than ever ahead of the ECB

Omkar Godbole FXStreet Contributor

EUR/GBP is down 2 percent this month and looks set to extend losses, say technical charts. As of writing, the currency pair is trading at 0.87 levels.

Price action this month

Repeated failure to cut through offers above 0.89 levels in the first half of this month yielded a drop below 200-day MA on Jan. 17. Another wave of selling on Jan. 22 pushed the pair below 0.87 levels, reviving interest in GBP bullish bets as is shown by the sharp drop in EUR/GBP one-month 25 delta risk reversals. The selling continued in subsequent days with the pair hitting a 7-week low of 0.8649 today.

Monthly chart - Long-term top in place

Bearish price-RSI divergence, followed by a breach of the ascending trendline indicates a bullish-to-bearish trend change.
The support of 23.6% Fib R has been breached as well.
The decline seen this month will likely yield a bearish 5-MA and 10-MA crossover.
So, the pair looks set to test 0.8393 (38.2% Fib R).

Weekly chart - Eyes channel support of 0.8617

The above chart shows the pair the weekly 50-MA and 23.6% Fib R support and now looks set to test channel support of 0.8617. A violation there would expose ascending 50-MA. The RSI has turned bearish as well.
Clearly, the weekly and monthly chart favor of a drop to 0.8617 and possibly to 0.8393 over the next few months.
That said, a short-term corrective rally to the downward sloping 5-day MA and 10-day MA could be seen if Draghi sounds less dovish than expected and fails to convince the market that ultra-easy monetary policy is here to stay for some time.

The 1-hour chart below does show bullish-price RSI divergence

The positive divergence could yield a move higher to 0.8750 (confluence of downward sloping 1-hour 50-MA and descending trendline).

View

Long-term trend - Bearish. A weekly close below 0.8617 could yield 0.8393.
A corrective rally to 0.8750 and possibly to 0.88 looks likely if Draghi fails to tame the hawks.
A daily close above 10-day MA would abort the bearish view and signal short-term consolidation.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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