EUR/GBP Price Analysis: Reaction extends after extreme bear move

EUR/GBP saw a steep decline in August but it appears to have found a floor and is consolidating.
Whilst the trend remains bearish there are signs bears may be exhausted and a reversal could be on the horizon.

EUR/GBP continues its counter-trend reaction after its accelerated decline during the month of August took it temporarily outside the bounds of its falling channel (shaded circle). This breakout is often a sign of exhaustion of the downtrend, however, it is a little too soon to tell.

EUR/GBP has now bottomed out and is evolving a sideways rangebound market mode.

EUR/GBP 4-hour Chart

So far the recovery has been quite shallow and it is currently capped by resistance from the 50-period Simple Moving Average (SMA).

EUR/GBP has not been able to break decisively above the SMA or the line of highs at 0.8435 suggesting a reversal remains elusive.

The pair will probably continue sideways until it reaches resistance from the upper channel line at roughly 0.8450.

The medium-term trend remains bearish, however, suggesting there is still a chance of an extension lower, although the channel exhaustion break lowers the odds.

That said, a break below 0.8406 (September 3 low) would pave the way for further weakness to a downside target at 0.8385 (July 17 lows).

In order to reverse the short-term trend, bulls would have to decisively break above the 50 SMA. A decisive break would be one accompanied by a long green candle that closed near its high or three green candles in a row that closed above the SMA.

The long-term trend (weekly chart) is still bearish whilst the medium-term trend is bullish.

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