GBPEUR: broadening formation or megaphone study
The British pound exhibits a broadening formation (also known as a megaphone) against the euro.
This pattern is rare, comes at the end of a significant rise or fall and denotes increasing volatility, i.e. indecision amongst traders.
It is often associated with elevated systematic effects such political or economic risk.
It can be both a reversal or continuation pattern. I have made a primer on this type of formation before, see: BTCUSD Broadening Bottom.
Generally, it forms when there are increases in both buying and selling confidence in times of uncertainty. Obviously in the case of GBPEUR this is tied in with uncertainties surrounding BREXIT & EU stability.
My position
I am bearish on the United Kingdom and cautiously optimistic on the European Union. When I look at this pattern I see more weakness than strength as the price failed to break the resistance over a 2 year period and then reacted very negatively (though not unexpected) to the country's current choice of leadership. The bounce so far has been lackluster. I suspect that we will see a partial rise, which is when the price fails to return to resistance after bouncing from support. A partial move will generally lead to a corresponding breakout: in this case breakdown of support.
To this I would add, the pound has been in a downtrend against the euro since shortly after the single currency was adopted, by which I mean the average value has decreased week on week since 2000. Compare this the GBPUSD, where the pound has decreased year on year against the US dollar since reaching an all time high in the 1860s: GBPUSD chart.
This pattern is rare, comes at the end of a significant rise or fall and denotes increasing volatility, i.e. indecision amongst traders.
It is often associated with elevated systematic effects such political or economic risk.
It can be both a reversal or continuation pattern. I have made a primer on this type of formation before, see: BTCUSD Broadening Bottom.
Generally, it forms when there are increases in both buying and selling confidence in times of uncertainty. Obviously in the case of GBPEUR this is tied in with uncertainties surrounding BREXIT & EU stability.
My position
I am bearish on the United Kingdom and cautiously optimistic on the European Union. When I look at this pattern I see more weakness than strength as the price failed to break the resistance over a 2 year period and then reacted very negatively (though not unexpected) to the country's current choice of leadership. The bounce so far has been lackluster. I suspect that we will see a partial rise, which is when the price fails to return to resistance after bouncing from support. A partial move will generally lead to a corresponding breakout: in this case breakdown of support.
To this I would add, the pound has been in a downtrend against the euro since shortly after the single currency was adopted, by which I mean the average value has decreased week on week since 2000. Compare this the GBPUSD, where the pound has decreased year on year against the US dollar since reaching an all time high in the 1860s: GBPUSD chart.
Comment:
GBPEUR retest former resistance
The Conservatives trounce Labour. The Scottish National Party removes any opposition Scotland. Brexit is certain now. And no-deal even more likely. It's not over folks, not by a long shot.