The 4 EURGBP Scenarios You Need to Know

The U.S. Dollar has been the center of attention in recent months due to its nice trend and bull run but today’s focus will be on a non USD pair –  the EURGBP.

EURGBP DECISION

The EURGBP is in a down trend but price is very close to a monthly bottom. This support level will be a very interesting decision spot for the currency pair:

  1. a break and more downtrend continuation (red);
  2. a flat and sideways correction (grey);
  3. a rebound bounce for a retracement (light green and red);
  4. or maybe even a reversal (dark green).

24- 9- 2014 eg 1

The last option does not seem to be a high probability at the moment due to the ascending wedge chart pattern so let’s review the options A, B and C.

Scenario A: a break and more downtrend.

There is wide open space below the support level: a gap of about 500 pips between the bottom and broken tops (0.7750 and 0.7250). Both the previous downside and previous upside moved quickly through this zone, which means that historically no vital support or resistance levels seem to be present. Therefore price moving again quickly through this zone is an interesting potential. However, a new level could cause some problems: the support trend line (black) could be a factor to reckon with as well.

For scenario A to occur, breakout and trend traders are looking for strong daily and weekly candles to close below the support level without big wicks on the bottom of the candle. For a full picture of the potential space and support and resistance, please take a look at this screenshot:

24- 9- 2014 eg 2

Scenario B: a flat and sideways correction.

This option seems very viable because price tends to respect support before a break or bounce occurs. The best approach is to keep an eye on the bottom and top of the flat correction. A break above it means that a bigger retracement will occur (as scenario C); whereas a break below the zone means a breakout is taking place (as scenario A).

24- 9- 2014 eg 3

Scenario C: a rebound bounce for a retracement.

Price would then bounce off of the monthly support at +/-0.7750 for a rebound back up. The retracement could occur in a zillion different ways – and most traders therefore either hate or love corrections. An ‘impulsive’ correction means that price will retrace back up quickly and with lots of pace. A ‘corrective’ correction means that price will retrace but it will take its time to move up (sometimes like a snail). But sometimes corrections start slow and then speed up so there are many different shapes and patterns.

For scenario C to occur, reversal traders should be keeping an eye on daily candle stick patterns that show rejection and potential bounce quality such as a bullish pinbar. For a full picture of the potential space and support and resistance, please take a look at this screenshot:

24- 9- 2014 eg 4

What do YOU think is most likely: scenario A, B and C? Write down your opinion and or paste your screenshot down below. Don’t forget to add your thoughts with the contest on the NZDUSD, please click here. Good luck!

Thanks for sharing and Happy Trading

 

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