EURGBP revisited and updated.

Last month I posted a big picture overview of EURGBP, my conclusion favoured a move to much lower levels. (That posting can be seen by clicking here) . For about a week it looked right, since then it has flown back the other way, big time. I have decided to revisit this analysis to see what I may have overlooked and then try and estimate where this pair may be heading next.

My earlier analysis, assumed that the breakdown was from a Multi-Month 'Reverse Symmetrical Triangle' or 'Double-Top', and hence that the pair was likely to plummet towards significant targets. I guess I may overlooked a couple of major points:

• Firstly that these are such long-term patterns, that it was a touch presumptuous to assume we would head towards targets in the short-term. 
• Secondly, that often (though not always), breakout from patterns will be subsequently re-tested. 
• Thirdly, that the pair was running into major congestion support from the period around 2008, large congestion areas, such as this, will often check moves progression.

In light of this I have looked at the EURGBP again:  this has led me to believe that the breakout from the topping pattern, which occurred in Q2, was valid, and that significantly lower levels lie ahead over the next several quarters, with targets around 0.7500.-  However, in the shorter-term, the move in recent weeks is corrective and may well take this pair higher back to breakout levels near .8680, though this correction could quite easily fall short of that level though, with a broad resistance band anywhere from .8400-.8800. - A move over .8800 will lead me to move to a neutral stance, and will bring the bullish possibility back into play, which will gain strength above .9000.  - Shorter-term the possibility of a move towards the breakout level of .8680 remains on the cards, though for me it is a contra-trend move now, and should be seen in light of that. Pullbacks should find support around .8400/20 and a rebound from around here would provide the upside with some impetus.  - However, be aware that a break back below .8300/20 would strongly favour a re-test of June's low in the mid-0.8000s. 

I have added my more detailed analysis below which led to the above conclusions:

Starting with the monthly chart. (The Monthly EURGBP chart is shown below - Clicking on it will enlarge it). - The sharp reversal off the low of last month has led me to ditch the idea that the last 2 years had formed a 'Double-Top' Pattern, however the 'Reverse Symmetrical Triangle' pattern is still very much alive, and a test and failure at or around the breakout level near 86.80 in coming months, may be the catalyst to an eventual move to lower levels.  - One other possibility which I have to however include, though I do not favour, is that the pattern of the past couple of years may be a Flag Pattern, this would suggest that an eventual breakout above 0.9000 would lead to significant new highs well above parity. - On this chart I have highlighted the congestion zone from 2008, and this is likely to continue to support moves down to and around the .7700 - .8100 zone. - I have also highlighted a couple of significant formations within the Triangle in the form of Monthly '3 Black Crows' patterns. These are potentially strong reversal/bearish indicators, with the second pattern occurring with the triangle breakout. On the next chart below I have shown Volume (on a weekly basis) during the formation of the 3 Black Crow Patterns, this shows a strong pick up in volume during the duration of these patterns, as well as on the breakout of the symmetrical triangle. This should be supportive of the idea that these patterns are significant. - Note, also that the recent correction higher has been on declining volume, which  suggests that this latest upmove may be corrective.

Looking at the Weekly chart (See below), the Triangle can be seen in more detail. The breakout of the triangle occurred around 0.8680, though there was a lot of price action around the breakout, which may act a congestion resistance to this recent upmove. The correction of the past 5 weeks has already pushed into this congestion band, which broadly encompasses 0.8400 - 0.8800.  This broad range includes 2 significant Fibonacci retracements @ 86.09 and 87.36, as well as the .8680 breakout and the triangle baseline at .8720-.8750 over coming weeks. It also includes the 40 and 68 week SMAs (lower chart), both of which are turning down, and are likely to act as overhead resistance . - Note : Currently monthly and weekly momentum are generally neutral and do not really provide any significant clues..

Finally looking at the daily chart, (See below and Click on to enlarge). This throws up some detail missing from the longer period charts. The breakdown into June's low took the shape of a sharp declining wedge pattern. The price low saw clear bullish divergence, and the break of the top line of the wedge pattern was accompanied by break in the declining momentum trend on both RSI and MACD. This favoured the sharp correction which has occurred.  - What is also evident is the inverted Head & Shoulder pattern on the daily chart. This Inverted Head and Shoulders pattern may continue to exert upside influence on the pair, targets using traditional measurement methods are .8771, which is close to the upper band of weekly congestion. The Inverted Head & Shoulders pattern could be a big clue as to where direction heads next. I would not be surprised to see the neckline of this pattern re-tested, this is around .8420. If it does re-test, then this would favour a continued push higher towards its target, though I think the larger bearish picture from the longer-term charts would weigh on it, probably keeping it from reaching its full target. - If however a re-test fails to hold the base of the right shoulder around .8313 then this would suggest that the downside is back in play with a good chance of a re-test of June's low at a minimum. RSI Momentum has reached overbought, though this is not at extreme levels and should not act as an impediment to further gains.