Key Points:
- Price action forms a descending wedge pattern.
- Key support zone around 0.83 handle looming.
- Watch for a upside breakout in the coming days.
The Euro-Pound has seen a convincingly slow burn over the past month as price action has continued to retreat within a descending wedge pattern. Much of the near term decline was down to the volatility around the French election, but with that particular risk event proving unfounded, the path may now be clear for the pair to experience a resurgence.
Fundamentally, the Eurozone is actually experiencing some suggestion of rising inflationary prospects and the ECB is now making noises on near term rate hikes or other contractionary policies. Subsequently, the current environment for Euro longs largely matches some of the technical indicators which are suggesting upward moves ahead.
In fact, a cursory review of the charts provides an illuminating picture of the potential technical setup that is currently in play. The past few weeks has seen price action form a relatively clear descending wedge pattern, on the daily time frame. Subsequently, this pattern is continuing to constrict and squeeze price action as we currently near a key liquidity zone. In addition, the RSI and Stochastic Oscillators are starting to rise, which suggests that the momentum is shifting to the upside.However, the ADX is still within a strong decline but is currently reaching depressed levels which would tend to suggest the trend is likely to run out of steam shortly.
Subsequently, there are some significant technical factors suggesting that the pair is likely to experience a breakout from the current wedge pattern in the coming days. Although it is somewhat difficult to predict which way price action will break from within a wedge most of the indicators are suggesting it will be to the upside. Subsequently, the most likely scenario in the coming days is a swift upward movement, breaking out from the wedge, and a bullish drive towards the 0.8600 handle, and 0.8683 in extension. However, caution is the watch word of the day so wait for price action to breach a zone of resistance around 0.8560 before considering any form of an entry.
