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Focus on the Strong Support at the 0.8520 Range as the Short Covering Has Not Concluded
Economic
Forex
Summary:
Following a breach of the April high at 0.8737 on Monday, the EURGBP experienced a swift retracement. However, the current market behavior suggests that the short covering is not yet complete. The exchange rate may continue its downward trajectory, with a target range of 0.8520.
Sell
TradingEURGBP
EXP
0.86248
Entry Price
0.85200
TP
0.86930
SL
0.86420 +0.00301 +0.35%
0
Point
Flat
0.85200
TP
CLOSING
0.86248
Entry Price
0.86930
SL
Fundamentals
The decline in the EURGBP on Wednesday aligned with market expectations. Post-hoc analysis suggests that the UK's performance in recent trade agreements has outperformed the EU, particularly given the widespread criticism within the EU regarding U.S.-EU trade deals, which the market interpreted as bearish for the euro.
However, a deeper driver may stem from market position adjustments. The divergent fiscal and monetary policy outlooks between the Eurozone and the UK made "long EURGBP" a favored trading strategy this summer.
The latest UK employment data indicates a continued cooling of the labor market, though it has not yet weakened to the extent that would prompt a significant adjustment to the Bank of England's interest rate trajectory. Despite Governor Bailey's statement that further rate cuts hinge on more pronounced economic weakness, the overall trend still leans towards gradual quarterly rate reductions.
Nevertheless, the weakening trend in the labor market persists, potentially exerting downward pressure on the British pound. Consequently, in the short term, short positions on the pound may still hold an advantage, particularly given the limited extent of the euro's weakness, which suggests a relatively constrained downside for the EURGBP. In the medium term, the exchange rate may still maintain a fluctuating upward trend. However, in the short term, market clearing is not yet complete, with technical indicators pointing to a downside target range of 0.8520.
Technical Analysis
The EURGBP experienced a significant retracement on Monday after breaching the 0.8737 level (April high). Technically, the completion of the inverse head and shoulders pattern has been confirmed, and the pair is currently undergoing a correction of the upward trend initiated from 0.8354.
The intraday trend leans bearish, with the critical support level currently situated around 0.8600, which aligns with the 38.2% Fibonacci retracement of the 0.8354 to 0.8752 advance. A sustained break below this level could see further downside, with the next target range at 0.8520.
A breach above the 0.8684 short-term resistance level would alleviate the current downward pressure and restore a neutral outlook.
From a broader perspective, the rebound from the 0.8221 low has not yet demonstrated sufficient strength to signal a reversal of the long-term downtrend from the 0.9267 high in 2022. However, even if this is a typical intermediate correction, the exchange rate could still test the 61.8% retracement level of the 0.9267 to 0.8221 decline, specifically at 0.8867. As long as the 55-week SMA (currently at 0.8486) is not decisively breached, the intermediate-term uptrend remains constructive.
Trading Recommendations
Trading Direction: Sell
Entry Price: 0.8646
Target Price: 0.8520
Stop Loss: 0.8693
Valid Until: August 14, 2025 23:55:00
Support: 0.8629, 0.8619, 0.8596
Resistance: 0.8658, 0.8684, 0.8698
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