CFD Trading Rate Euro vs Great Britain Pound (EURGBP)

• EUR/GBP continues weak, bears eye the 0.8450 support.
• RSI flattened around 42, indicating an easing selling momentum.
• MACD shows rising red bars, suggesting a steady bearish pressure.

In Monday's session, the EUR/GBP pair extended its losses, dipping further below the 0.8500 support level to land at 0.8460.

The daily Relative Strength Index (RSI) has fallen to 42, indicating a shift in favor of the sellers but its slope flattened. The Moving Average Convergence Divergence (MACD) is printing rising red bars, suggesting that the bearish pressure is steady. 

Volume has declined in recent sessions, indicating a lack of conviction among market participants. On the other hand, the pair has formed a series of lower lows suggesting that the bears are currently in command but seem to be struggling around the 0.8450-08500 area. In that sense after four sessions of losses and with momentum flattening, the pair might enter into consolidation as the sellers take a breather.

EUR/GBP daily chart

• EUR/GBP continues declining within a falling channel. 
• It has reached oversold levels and could be poised for a recovery. 

EUR/GBP continues trickling lower in a falling channel. The declining sequence of peaks and troughs indicates the pair is in a short-term downtrend, and given “the trend is your friend” this biases prices to further weakness. 

EUR/GBP 4-hour Chart 

The pair has touched down on the lower channel line, a historical support level that previously provided the launch pad for counter-trend reactions higher. There is a chance the same thing could happen again. 

The Relative Strength Index (RSI) is heavily oversold indicating traders should not add to their short positions as there is a greater risk of a recovery. RSI can remain oversold for long periods whilst prices continue falling but EUR/GBP has now been oversold for 14 periods on the 4-hour chart which is already quite long. Traders should wait for RSI to exit oversold on a closing basis and re-enter neutral territory before placing buy orders.   

EUR/GBP has now broken below the 200-period Simple Moving Average (SMA) and the 0.618 Fibonacci retracement level of the late-June and early-August rally – both bearish signs. On the daily chart (not shown) it is trading just below the key 50-day SMA but it is difficult to determine whether it has decisively broken below the 50-day, which could still offer support for a rebound. 

The price itself formed a bullish Hammer Japanese candlestick reversal pattern on August 23 (bold rectangle on chart above). This occurred after it briefly fell below the channel line then recovered in the same 4-hour period. The pattern was followed by a green up candle providing bullish confirmation of a near-term recovery. However, the price has so far failed to rise. If EUR/GBP breaks below the Hammer candle’s lows at 0.8453 it will signal further downside. If the low holds hope of a recovery remains alive.

Given the downtrend in the short-term, EUR/GBP there is still a chance of another break below the channel line. A decisive break below the lower channel line would validate such a breakout. It would be a very bearish sign but the move lower would be unlikely to last long. Such moves are often signs of exhaustion. 

A decisive break would be one accompanied by a longer-than-average red candlestick which closed below the channel line near its low, or three red candlesticks in a row that broke below the level. 

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

• EUR/GBP holds ground after the release of positive German figures on Monday.
• German IFO – Business Climate came in at 86.6 for August, exceeding the expected reading of 86.5.
• BoE Governor Bailey suggested the possibility of accelerating rate cuts during his speech at the Jackson Hole symposium.

EUR/GBP attempts to halt its three-day losing streak following key economic data from Germany released on Monday, trading around 0.8470 during Monday’s European session.

The German IFO Business Climate index for August came in at 86.6, slightly above the market expectations of 86.5. However, this was a decrease from the previous month's reading of 87.0. Meanwhile, the IFO Current Assessment matched expectations with a reading of 86.5, down from 87.1 in the previous month.

On Friday, European Central Bank (ECB) Governing Council member Olli Rehn suggested that the recent drop in inflation, combined with economic weakness in the Eurozone, strengthens the argument for lowering borrowing costs next month, Bloomberg reports.

The sluggish growth outlook in Europe, especially in the manufacturing sector, further reinforces the case for a rate cut in September. Additionally, markets are assessing how the increasing expectations of Federal Reserve rate cuts might impact borrowing costs in Europe.

At the Jackson Hole symposium, Bank of England (BoE) Governor Andrew Bailey hinted at the possibility of faster rate cuts, pointing to a quicker-than-expected decrease in inflation. However, Bailey emphasized the need for caution until inflation consistently meets targets, following last month’s rate reduction from 5.25% to 5.0%.

However, speculation that the BoE’s policy-easing cycle may proceed more slowly than those of other major central banks is lending some support to the Pound Sterling (GBP).