Rounded bottom: Following the previous post on the EUR/GBP coiling in a rounded bottom attempt, the market broke the triangle to the downside but held above the 0.80 handle and support pivot area. Remember the warning about triangles resulting in false breakouts. The real break occurred to the upside, where it extended until it cracked the previous support/resistance pivot of 0.8076. This completes a rounded bottom.
Channeling, momentum: The 4H chart shows the EUR/GBP forming what appears so far as a rising channel. The trend is not there yet, as the 200-SMA is flat with the other moving averages as well as price whipping up and down. The momentum is showing some signs of bullish development – after tagging 70, it held above 40 and pushed back above 60. Another push above 70 should reflect further continuation of this nascent “trend”.
Trend in daily chart: Looking at the daily chart, we do have some wind on the back of the uptrend. The channel drawn here is subjective, but price has been making higher highs and higher lows since July, so it’s been a good 4 months. The RSI has tagged 70 held above 40 re-tagged 70, and is now again held above 40 with a chance to push above 60. The push above 60 reflects bullish continuation momentum.
Young vs. established trend: While the “uptrend” appears slightly more mature in the daily chart vs. the 4H chart, it is still young, and is against the trend since mid-2011 to July 2012. Note that it is only starting to attempt moving above the 200-day SMA since it well solidly below it in Nov. 2011. Not shown here, but 38.2% retracement of that year+ long decline would be at 0.8257, still some room for a correction.
Summary: 1) We have the 4H chart and daily chart showing some upward channeling action. 2) Momentum so far has been bullish in both time-frames. 3) This bullish development goes against the downtrend from 0.9068 2011 high to 0.7756 2012 low, with 38.2% retracement at 0.8257. (Still look out for 0.8160-0.8165 area as resistance in the short-term as it has been the high since early May.)
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
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