At the end of last week, EUR/GBP dropped to a seven-year low on the likelihood the European Central Bank is likely to remain accommodative and growing expectations that the Bank of England would be one of the first central banks to raise interest rates. Today, the euro got a boost after Greek Prime Minister Alexis Tsipras received lawmaker backing for tough reforms. This also pushes back the next major Greek bailout deadline to August 20th.
The British pound also weakened after a surprisingly miss with June’s retail sales figure. The volume of sales dropped 0.2% from May, much lower than the expected gain of 0.4%. The news was not all bad as the prior reading was positively revised to 0.3%.
The EUR/GBP daily chart shows the long-term downtrend has found major support from the .6934 low and has currently recaptured the .70 handle. If bullishness continues, the next major resistance level will come from the .7078 level. It is around that area that a bearish Gartley pattern could form. Point D is targeted with the 50.0% Fibonacci retracement of the X to A decline and the 141.4% Fibonacci expansion level of the B to C leg. If valid, price could have an immediate reversal targeting the .6950 area.
The reversal pattern could be invalidated if we see price continue to rebound above the .7120 level. If this pullback continues, major resistance will come from the .7150 - .7200 zone.
The trade: Sell EUR/GBP at .7080, with a stop loss at .7120 and a take profit at .6960. The Risk/Reward Ratio is 1: 3
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading