EUR/GBP resumes its bearish momentum after a brief pullback, confirming a lower low and setting the stage for further downside. Despite this, the Relative Strength Index (RSI) signals a potential slowdown, highlighting a divergence between price action and bearish momentum.
Key Takeaways:
- EUR/GBP resumes its downtrend, breaking key support levels.
- RSI divergence suggests a potential stall in the current sell-off.
- Economic divergences between BoE’s dovishness and ECB’s potential rate cut further influence market sentiment.
Technical Analysis:
- H4 Chart:
- On the H4 chart, EUR/GBP continues to respect the bearish structure with multiple Break of Structures (BOS) signaling continued selling pressure. The pair found support around the 0.8320 level, aligning with key fib retracement zones (0.618 at 0.83221), which coincides with the RSI divergence.
- The premium area around 0.8460 remains a key resistance zone should the pair attempt another rally. However, the overall market remains firmly bearish unless a major reversal in the structure occurs.
- H1 Chart:
- The H1 chart shows a clear break below the 0.8317 level, which acted as the previous low, confirming the continuation of the bearish trend. The next target could be the August 2022 low at 0.8287, though the RSI divergence on the lower timeframes may provide some temporary relief to bears.
- Immediate resistance is now seen at 0.8350, where the bearish structure may be tested again, providing potential sell opportunities for traders.
- Daily Chart:
- According to the Daily Chart, EUR/GBP has completed a 61.8% fib retracement of its recent sell-off, with downside momentum starting to wane. RSI divergence from September 24 to October 1 further indicates a potential pause in the sell-off, though the broader trend remains firmly bearish.
Economic Data:
- BoE Outlook: The dovish stance from the Bank of England, particularly Governor Bailey’s signals about potential rate cuts, has weighed heavily on the Pound, keeping pressure on the EUR/GBP.
- ECB Impact: On the Euro side, increasing bets on an ECB rate cut in October continue to affect the pair. This rate differential widens the impact of any movement in monetary policy on the pair’s direction.
Trading Recommendation:
- Short-term: Traders could look for potential selling opportunities if EUR/GBP retraces towards the 0.8350-0.8380 resistance zone. The next downside target could be around 0.8287.
- Long-term: With the current bearish trend intact, further declines remain likely unless we see a structural shift above the 0.8460 level.
Conclusion:
EUR/GBP remains in a bearish trend with further downside likely, especially with key economic drivers from the BoE and ECB impacting sentiment. Traders should remain cautious of any RSI divergence as a potential stall in the trend, though the broader bearish outlook remains intact.
