Price reached a low in March 2019 and another low in May of 2019. The Double Bottom reversal chart pattern was confirmed with a price movement above the neckline in May. Price has reached its Double Bottom chart pattern but today and for this week, we are seeing a strong green candle in the weekly chart that moves above the resistance high. A break of this resistance should see EUR/GBP test its previous high of 0.9096, seen in Dec of 2018. Depending on the outcome of this resistance test, if price is able to move above this resistance, it can go to 0.9245.
The 20 period EMA is bullish and pointing up. It steep gradient is a hint of a strong bullish trend. MACD confirms the bullish trend. MACD is also moving higher and is not going to do a reversal as yet. Stochastic may be in overbought extreme but with a strong trend, Stochastic may stay in the overbought zone for a longer period of time. Going by the next projection target of Fibonacci, the 261.8 target comes in at 0.9135. The Ichimoku reversal 3E target comes in at 0.9230. Given the strong trend, we think price has a good chance of going to 0.9135 or even 0.9230.
We know for some time now that the Eurozone economy is weak. However, there is little room to cut interest rate given the almost zero interest rate currently in Euro land. We have heard talks of another round of QE but this could have already been factored into price and driven the Euro to its current low price. However, it was only last week that we heard BoE’s governor Carney talking about external factors that could affect the UK economy. Carney could be hinting of following the global trend of lowering interest rate. Up to recently, BoE’s stance was a possible rate hike after Brexit. Now there is likely to be no rate hike but a possible UK rate cut. Sterling has yet to fully factor this into its price.
With Boris Johnson likely to be elected as the next Conservative Party leader with his immense lead in the leadership race and given his stance on Brexit, the risk of Brexit without a divorce deal is increasing with each passing day. We can expect Sterling to depreciate with each passing day. Analysts have warned a no-deal Brexit could send GBP/USD below 1.20 against the US$. It could also lead to EUR/GBP going above 0.9200
We recommend buying EUR/GBP at 0.8990. Stop should be placed at 0.8820 and target at 0.9245