As it's been shown numerous times over the last couple of weeks, the market currently finds itself in a transitionary stage – the initial coronavirus crash is now concluded, and most asset classes have started consolidating within narrow ranges in the wake of the crisis' aftermath. The EURGBP, too, has been undergoing through a stretch of somewhat muted price action, but the pair has also been establishing bigger price swings on average compared to most other FX majors.
Both the euro and the pound have been put under a lot of strain from varying market pressures that have been exerted upon the two currencies because of the recent developments in the Eurozone and the UK. All of this has consequently made the EURGBP quite volatile in an otherwise range-trading environment.
For this reason and more, the purpose of today's analysis is to examine the behaviour of the underlying price action and to discern whether and how swing trading strategies can be applied to take advantage of the present tumultuous situation on the FX market.
1. Long Term Outlook:
As can be seen on the daily chart below, the EURGBP has indeed been consolidating within a narrow range following the initial coronavirus crash in early March. Yet, the overall amount of adverse volatility in the market has been on the rise during the last several days, as demonstrated by the widening Bollinger Bands. Given the context of the overall market sentiment, this behaviour is favourable for the application of swing trading strategies.
EURGBP 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
Тhe underlying momentum in the market is rising as well as illustrated by the MACD, which confirms the expectations for the emergence of increasingly bigger upswings. It should be noted that the 26-day EMA, one of the quintessential components of the MACD, is currently about to cross above the 0.000 per cent mark for the first time since the last bearish trend. This is important because it underpins the transition of the market from accommodating subdued price action to becoming more volatile and active. Even still, it should be remembered that the rising bullish momentum would not preclude the formation of interim downswings, so caution must be exercised.
The first major test for any developing upswing would be the 38.2 per cent Fibonacci retracement level at 0.90438, which is currently serving as a resistance level. On the condition that the market starts establishing a new bullish trend that breaks out above set level, the next prominent target would be the 23.6 per cent Fibonacci retracement level at 0.92203. Conversely, the emergence of a potential downswing is likely to cause the price action to fall to the 61.8 per cent Fibonacci retracement level at 0.87586, which is serving as the most prominent support level close to the current market price. Moreover, the importance of the latter is further bolstered because of the level's close proximity to the BBs' middle line, which is also serving as a dynamic support.
2. Short Term Outlook:
EURGBP 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
As can be seen on the 4H chart above, the market appears close to completing the first significant bullish upswing in the short term, which could clear the way for a reversal in the underlying direction of the price action. In other words, contrarian traders would be watching for a breakdown and subsequent formation of a new bearish downswing.
There are two crucial reasons to expect the formation of a new downswing or at the very least an intermediate bearish correction in the broader bullish trend. First of all, the price action has recently consolidated just below the upper boundary of the ascending channel, which typically serves as a potential turning point. Hence, if the EURGBP does not manage to break out above it soon, this would be demonstrative of diminishing bullish commitment in the market. Meanwhile, a breakdown below the 20-day EMA and the channel's middle line would be illustrative of fast-rising bearish commitment in the market, which could be perceived by some as the beginning of a new bearish downswing.
Second of all, the MACD appears to have reached the peak of the most recent wave, which underscores the aforementioned exhaustion of bullish momentum in the market. Should the 12-day EMA cross below the 26-day EMA, this would represent the rising bearish momentum in the short term.
The hourly chart below further confirms the rising bearish sentiment in the very short term. The price action appears to be in the process of establishing a double top pattern, which has evidently reached a peak around the 0.89600 price level. This is important because this likely resistance level is near the 0.90000 level, which implies a significant psychological barrier. Hence, this is yet another indication of a probable reversal in the underlying direction of the price action around the current market level.
The double top pattern will be confirmed if the price action manages to break down below the minor support level at 0.89020. Consequently, such a development would be illustrative of rising selling pressure in the market, and could therefore prompt even more traders to enter short around the minor support level.
Finally, the three Moving Averages – the 5-day MA, the 8-day MA, and the 13-day MA – have formed into descending order, with the first being below the second, which, in turn, is positioned below the third. This behaviour also confirms the rising bearish commitment in the short term.
EURGBP 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
3. Concluding Remarks:
Overall, the EURGBP represents good opportunities for swing traders to implement their favourite strategies. That is so because the price action as seen on longer-term charts remains subdued. In contrast, the picture in the short term is slightly different, with the price action forming distinctive upswings and downswings. This is also favourable for contrarian traders who are looking for trend reversals, something that appears to be happening right now, with the EURGBP seemingly getting ready to form a new dropdown. Traders should remember, however, that all of this is relative, and a bearish trend on the hourly chart may simply turn out to be a minor correction in the underlying bullish upswing on the daily chart.
Profit & Loss
Journal Entries
May 26, 2020 - Entry 1
EURGBP 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
- The price action exhibited range-trading characteristics, as anticipated by the analysis. The short-term projections were realised, which resulted in profit. Given the ranging market, the analysis could have utilised range-trading indicators, such as the Stochastic RSI, more.
Disclaimer: Your capital is at risk! Trading and investing on the financial markets carries a significant risk of loss. Each material, shown on this website, is provided for educational purposes only. A perfect, 100% accurate method of analysis does not exist. If you make a decision to trade or invest, based on the information from this website, you will be doing it at your own risk. Under no circumstances is Trendsharks responsible for any capital losses or damages you might suffer, while using the company’s products and services. For more information read our Terms & Conditions and Risk Disclaimer.
Over the past few weeks, the USD has lost nearly 800 pips against the JPY, driven by Japan's shift away from decades of negative interest rates. With the Bank of Japan raising rates for the second time in a row, investors are adjusting their positions to [...]
Despite its volatility, Silver remains in an uptrend. While not as dynamic as Gold, XAG often mirrors XAU’s movements. A Multiple Top has formed around $32.50, and history shows that the more a level is tested, the weaker it becomes, increasing the likelihood of a [...]
A combination of factors, including Trump-era tariffs, the emergence of DeepSeek, and a slowdown in GDP growth, has contributed to the recent pullback in the US30 from its record highs. From a technical standpoint, a Double Top pattern has formed around the [...]
Over the past month, Silver has experienced an impressive 13% surge, marking a strong bullish trend. Despite notable volatility and multiple pullbacks, the overall momentum remains firmly to the upside. This strength is further validated by the Golden Cross, a historically reliable [...]
The Swiss Stock Market has been on a remarkable rally, surging over 15% between December and January. At times, the price action resembled a near-vertical ascent. However, following the announcement of Trump’s tariffs over the weekend, Monday’s trading session opened with a [...]
Between October and January, GBPUSD experienced a significant decline, dropping by approximately 1300 pips. However, we now observe signs of a potential trend reversal. Over the past few weeks, the pair has rebounded by more than 400 pips, shifting momentum toward a [...]
For the past 1 month, the UK100 saw a fantastic 600 point rally! The occasional corrections only attracted more buyers, which is healthy for the current up trend and the RSI currently exhibits elevated demand. A 130 point correction started last week on Friday, dipped below the [...]
Over the past two weeks, Japan’s leading stock index surged 2,000 points, reflecting strong bullish momentum. However, this week saw a sharp sell-off, erasing nearly all gains since mid-January. Despite this drop, the decline stalled at the 61.8% Fibonacci retracement, a key [...]
There is a clear shift in the momentum in the Oil market, with the commodity dropping with nearly 10% for the past 2 weeks. The Death Cross, a classic sell signal, is indicating that sellers are indeed in control and we are lookin now at a strong [...]
The 350 pip rally for the past 2 weeks seems like a trend reversal for EURUSD, with buyers back in control. The strong bullish momentum is also confirmed by the Golden Cross, a historic buy signal. Corrections are healthy for the trend and we currently looking at [...]
For the past 2 weeks GBPUSD went up with 400 pips and this is why we believe we might be looking at a trend reversal. The strong bullish momentum is confirmed by the Golden Cross, a classic buy signal, which supports the hypothesis that [...]
The Death Cross formation in USDJPY signals a robust downward momentum, with the USD depreciating by 300 pips over recent weeks. Further declines exceeding 300 pips are anticipated, potentially reaching the 152.00 level. Despite several corrective pullbacks, the price has been unable to surpass the [...]
Following the formation of a Double Top pattern at the 21,930 level last Friday, the NASDAQ has experienced a significant decline, plummeting by nearly 800 points. This downturn has been primarily driven by unfavorable manufacturing data emerging from China, alongside the Bank of Japan's interest rate hike on Friday. The market reaction closely resembles the [...]
GOLD's uptrend has regained strength, with several factors supporting further gains. The RSI bounced from oversold levels and now stands at 65, signaling growing demand and increasing buying volume. Additionally, the appearance of a [...]
For the past few months, USDJPY gained 2100 pips! Then, about 10 days ago the USD started dropping and so far corrected with 300 pips, dropping down to 155.00. A local Double Bottom got formed and this level also aligns with the important [...]
For the past week, the US100 has surged by over 1,000 points, signaling strong bullish momentum. The RSI stands at 69, indicating high demand and buyer dominance. A bullish Golden Cross pattern has emerged, confirming the upward trend. Despite a brief correction yesterday, with the index dipping to [...]
The Descending Triangle on the 4-hour chart, typically a bearish signal, failed to materialize this time. Instead, the Triple Bottom support at 92,000 held strong, driving significant buying volume. A Golden Cross—a classic bullish indicator—confirms strong [...]
After a 300-point correction from its December highs, the SP500 appears to be rebounding as bulls regain control. This recovery is supported by positive economic data, including strong NFP numbers, low unemployment, and CPI readings meeting expectations—all favorable for stocks. Additionally, the earnings season began yesterday with [...]
For several months, the EUR has been trending downward, losing hundreds of pips. While occasional corrections to the upside occur, bears remain in control. The strong downward momentum is highlighted by the Death Cross pattern, a classic sell signal. Yesterday, we observed another [...]
The Dollar remains strong, with buyers firmly in control since the Fed's December comments hinting at fewer 2025 rate cuts. This drove a 400-pip rally in USDCAD, now facing resistance near 1.4450 as early buyers take profit. Corrections are part of healthy trends, and the pair is testing support at [...]
Today is CPI day, and technical analysis often falters on major news days. Nevertheless, here's our take on the US Tech 100: we anticipate a potential drop of 800-1,000 points. December's Fed comments triggered a selloff, with bears dominating the index for weeks. The strong downward momentum aligns with [...]
