September 13, 2021 15:21:22

Since April, the long-term downtrend in EUR/GBP has tracked sideways. The 0.87 to 0.85 range has proven its worth with sterling bulls getting excited as new multi-month lows in August were made below the previous cycle trough at 0.8471. But prices rebounded from here in what is now a strong support zone, punching above the 50-day SMA in the middle of last month.

The 100-day SMA looks to have capped any further upside, with EUR buyers printing a recent high at 0.8613. This didn’t break the recent mini-range and the ECB meeting saw increased volatility last week. The overall policy stance of the President Lagarde and the Governing Council remains firmly dovish. This has seen EUR/GBP break down out of the recent range and through support around 0.8561.

A weekly bearish engulfing candle now also points to potentially more downside, with the pair again trading below its 50-day SMA at 0.8543, which acts as first resistance. If we get back above here, then we are back in the range and bulls may be emboldened to have another crack at the 0.8613 highs of last week.

But a strong close below the 50-day SMA and the current bearish momentum should see prices fall to the figure at 0.85. The lower end of the trend channel and the current cycle low at 0.8450/43 is then in play.