- EUR/GBP forms a two bar reversal pattern and begins descending.
- This comes after price has filled a gap on the charts – another reversal sign.
- Evidence is building that the correction from the June 14 lows has rolled over and the intermediate downtrend is resuming.
EUR/GBP is potentially resuming its medium-term downtrend after correcting higher since the June 14 lows.
EUR/GBP Daily Chart
The pair has formed a two-bar reversal pattern at the peak of the correction, on July 1-2 (light blue rectangle) which is a bearish indicator. Two-bar reversals occur when price peaks and forms a green candle which is succeeded by a red candle of a similar shape and size. The fact that the day after the pattern was also bearish is further confirmation.
EUR/GBP 4-hour Chart
A further indication the dominant downtrend is resuming is that EUR/GBP has filled the price gap that opened between 0.8472 and 0.8490 (red shaded area). This gap can be seen on the 4-hour chart above.
It is said prices are often drawn to fill gaps and now they have there is more chance the downtrend will resume.
A break below 0.8458 (July 3 and June 28 low) would provide added bearish confirmation.
The next downside target would be the 0.8431 June 25 low.
Alternatively if the pair recovers, and breaks above 0.8499 (July 1) it could indicate a continuation of the correction higher, with the 50-day Simple Moving Average at 0.8517 providing resistance and the next target to the upside.
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