While most other currencies are stuck in the boring kiddy park, pound sterling has been a rollercoaster ride so far today. As my colleague Fawad Razaqzada noted earlier, the pound rocketed higher on the back of a slightly stronger-than-expected CPI report, which showed that core prices expanded at a five-month high rate of 1.2% year-over-year in July. As any experience thrill seeker knows, however, what goes up inevitably comes back down: GBP/USD has since faded over 60 pips from its intraday and has fallen back into its five-week consolidation range.
By contrast, the price action in the EUR/GBP cross has been a bit more consistent. The pair stalled out against resistance at its bearish trend line and 100-day MA near .7170 last week and has now shed over 100 pips in the last three trading days. As it currently stands, the unit is on track to put in a big Bearish Engulfing Candle* today, pointing toward the potential for more downside as we head into the latter half of the week.
Taking a step back, the longer-term downtrend remains intact, though the pair has strong support, and a possible double bottom pattern around the .6950 level. As for the secondary indicators, the MACD did peek above the “0” level, but now shows signs of rolling back over, while the RSI is solidly in neutral territory near 50.
From here, a move back down toward support at .6950 appears likely, but long-term bears are exercising caution unless and until EUR/GBP can break below that level. If we do see a bearish breakdown, a continuation toward previous support in the .6700-.6800 region could be in the table, whereas a break above the 100-day MA and bearish trend line near .7150 would erase the bearish bias.
*A Bearish Engulfing candle is formed when the candle breaks above the high of the previous time period before sellers step in and push rates down to close below the low of the previous time period. It indicates that the sellers have wrested control of the market from the buyers.