EUR/GBP fell to a fresh two-month low after a report showed that U.K. retail sales jumped 1.2% in April, much higher than the expected 0.4% increase. The impressive print took the strong trend of increasing sales to a record 26 straight quarters.
The reaction to the strong reading took the currency pair from .7153 to .7109. Currently price is residing near critical support from the M-shaped pattern identified in my last EUR/GBP post.
The bearish move now appears strengthening as price appears poised to have a fourth consecutive bearish trading day. With price now comfortably trending below all three key (200-, 100-, and 50-day) SMAs, we could see a considerable drop target the psychological .70 handle. Beyond that level, support may initially target the .6887 level and eventually the .6561 zone.
If we see a round of profit taking, upside may be capped by the .7180 area. In the event, bullishness recaptures the .7200 handle, critical resistance may come from the 50-day SMA, which is trading at the .7242 level.
The trade: Sell EUR/GBP at .7125, with a stop loss at .7185 and a take profit at .7005. The Risk/Reward Ratio is 1: 2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading