Stalking a Retracement in EUR/GBP

Daily: The EUR/GBP is on a decline, and price action spells continuation. In the daily, after the RSI broke above 60 there was an immediate reversal signal. In the 1H time-frame, you would have seen a double top 2 weeks ago.

The market broke a support that appears to be a neckline to a head and shoulder, and now looks to decline further if the break is confirmed.

I still keep some skepticism, because some violations of the downtrend suggests the market is likely sideways. Therefore, I will be looking for support as soon as the 78.6% retracement.

In fact it appears the 61.8% retracement level is already providing some support. Monitoring action in the lower time-frame may give us some early clues on what the market is thinking as the continuing decline sees support.

1H: The EUR/GBP pair in the 1H chart is rallying in the near-term, but has hit resistance. You can see the projected ab=cd retracement pattern to 0.8316. The market was just a few pips from this projection when it started turning back down.

Now it is testing the resistance of the previous consolidation area as support.

The RSI remained below 60, a good sign for a bearish outlook. The orientation of the moving averages in both the 1H and daily chart is bearish, so we are going with the trend on this outlook.

A swing projection points to 0.8192, which is actually just above 78.6% retracement. This target would be hit in both a ranging, and bearish scenario, but not if the market turned bullish. Looking at the price action and momentum, the bullish scenario is not likely to materialize anytime soon, unless the market breaks above the 0.8330 area. So you can use the 0.8330 as a guide for stop placement(ie. 2 ATR above) in a short trade.

The reward to risk ratio for the projection to 0.8192 is not attractive, but if the market continues to confirm the bearish outlook, we may continue further lower towards 0.81/0.8060.

If the RSI in the 1H chart dips below 30 again, it is a good confirmation of strong bearish trend and heightens the possibility of the reaching the more aggressive target.