EURGBP to Push Lower After Wedge Retest

FX:EURGBP   Euro / British Pound
If price closes underneath the combination of support, traders will search out The U.S. dollar’s upward momentum quickly faded, following Wednesday’s FOMC minutes which suggested a December rate hike was “back on the table.”

Traders were likely booking profits after the spike higher in the dollar index             , which has caused dollar pair counterparts to advance into the weekend. The greenback advance tested, and failed at, price resistance at 97.80.

The euro             was able to rebound modestly after the downright shellacking it took following comments from European Central Bank (ECB) President Mario Draghi that more quantitative easing and interest rate adjusts can be made when needed.

However, the pound greatly surpassed gains made by other currencies against the general dollar weakness.

I have said previously, even mentioned it to Pedro da Costa (Editorial Fellow at the Peterson Institute for International Economics), that the Bank of England’s comments about a rate hike by the end of 2015 were as facile as the Fed’s.

After the highly anticipated September FOMC minutes, where the vast majority expected the Fed would indeed hike rates (not I), came and went without a rate hike, Sterling sold-off. Why? I mentioned that the Bank of England does not want to move first in monetary tightening and was merely piggybacking off of the Fed’s rhetoric.

Now that the Fed fund futures have priced in a higher probability of a rate hike in December and January (2016), cable has made solid gains in recent days.

Technically speaking, EURGBP             really began its decent lower after Draghi’s QE-related comments, and the selling pressure piled on after this week’s FOMC.

Price action has closed the week at an important support-crossroads. The broken descending resistance trend created by a previously completed daily wedge (purple dotted) is not acting like subjective support, while price support comes into play at .7115.

If price closes underneath the combination of support, traders will search out price targets of .7030 and .6965. If current support can muster buying, a rebound to .7200 is probable with secondary pullback target of .7270.

In the medium-term, we are likely to see trader sentiment strengthen in favor for the Sterling as long as data remains mediocre in both the U.S. and the U.K., which would allow the pretense of potential monetary tightening by the end of the year.

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