Daily and monthly pictures for the EURGBP (data up to 29-01-2008)

This pair is in the process of correcting the tremendous excesses in the price action that occurred at the end of last year. After the breakup of the contracting triangle consolidation (monthly 1) and its test from above, the pair has been propelled up like a rocket. The last high, near 0.725, did a bit of trouble only in the daily view (daily ellipse 1) but, in a general perspective, it did not dent the resolve of the pair to achieve 0.76.

Since this level was reached, in mid January, we are witnessing an ABC correction that should take the pair to retest the breakout of the upper boundary of the big trading range (monthly 2).

The following technical elements help us in our assumption: The drop from 0.76 was hard and assertive which show normally a change of tone and trend in the short term. A bump in a continuing trend looks more timid. All the indicators reached a very high level of overbought status when the price was at the top. The ADX (blue line in the DI window) is one of the most noticeable by its behavior.

Look how it reversed like a pyramid top. RSI and DI have only reached mid-level values and this fact tells us that there is still room for a C subwave that will bring them to some oversold situation. Remember that we are in a bull market here and that these oversold values could be higher than the normal text book ones, meaning that the reversal could be higher than 30 in the RSI, etc…

The 20 day moving average (green in daily) supported the price for a while but was violated badly. This really important break down was tested from below and we got a continuation to the downside after this test. This is very bearish. The next important obstacles are: the ascending channel lower boundary, support near 0.74, Bollinger lower band.

The combination of these three at the same general price level can and will cause a lot of hart burn to the bears but we think that they will be overcome. When this feat will be accomplished, the pair could drop very quickly to our designated target between the 61.8% and 78.6% Fibonacci retracements.

Disclaimer

By no means do any part of this article recommends, advocates or urges the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author and his company express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this article. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. The content of this article was created with the best known data at the time. The writer and his company are not responsible for the accuracy or completeness of the mentioned data. The writer is not a registered consultant of any kind and so the reader should not see any single part or the whole analysis as an advice for any kind of action in the financial markets.
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About the Author

Moshe Shalom Head of Technical Analysis Department ForexManage Ltd Site: www.forexmanage.com Email: This email address is being protected from spam bots, you need Javascript enabled to view it