EUR/GBP (daily chart) as of February 8, 2013 has made approximately a 38% bearish retracement of January’s dramatic rally. This substantial correction has brought price below the key 0.8500 support level, and is approaching further downside support around 0.8400. The recent bullish trend for EUR/GBP began in July of 2012, but accelerated rapidly in the beginning of January. This month-long rally could readily be seen with the major currency pairs in a strong bullish trend for EUR/USD and a strong corresponding bearish trend in GBP/USD.
Now that the current pullback has occurred in EUR/GBP, this has been manifested as a bearish retracement for EUR/USD and a corresponding bullish retracement for GBP/USD. Despite the current 38% correction in EUR/GBP, the uptrend is still intact for the time being. With key support at 0.8400, which is also the 50% Fibonacci retracement of the January rally, a strong breakdown below that level could place the current bullish trend at jeopardy. Conversely, a bounce around or above the 0.8400 level could indicate a potential recovery of the bullish bias, which could lead the way back up towards key 0.8700 resistance and above.
James Chen, CMT
Chief Technical Strategist
City Index Group
Forex trading involves a substantial risk of loss and is not suitable for all investors. This information is being provided only for general market commentary and does not constitute investment trading advice. These materials are not intended as an offer or solicitation with respect to the purchase or sale of any financial instrument and should not be used as the basis for any investment decision.
