EUR/GBP Monthly Technical Analysis for May 2016

The EUR/GBP posted a potentially bearish closing price reversal top in April, finishing the month at .7832, down 0.009 or -1.14%. After reaching its highest level since June 2014, driven mostly by an extremely bearish British Pound, the Forex pair reversed course, triggering a massive break from its high and ending the month below the previous month’s close.

The Sterling picked up strength in April due to the easing of concerns about a U.K. exit from the European Union.

The Euro lost ground after flash Euro Zone Q1 GDP estimates published by Eurostat showed that Q1 GDP growth came in at 0.6% q/q, beating consensus forecasts for a rise of 0.4%. On an annualized basis, Euro area GDP was at +1.6% compared with Q1 2015.

Eurostat also released its flash estimate for Euro Zone CPI inflation in April which showed inflation back in negative territory. April headline dipped by -0.2% y/y in March. Core CPI, which excludes food, energy, alcohol, and tobacco costs increased by a seasonally adjusted 0.8% in April, below forecasts for 0.9% and down from 1.0% a month earlier.

The main trend is down according to the monthly swing chart, momentum has been to the upside since July 2015, accelerating since December 2015. However, last month’s closing price reversal top is an indication of a shift in momentum back to the downside. A trade through .8116 will signal a resumption of the uptrend, but a move through .7734 will confirm the closing price reversal top.

The main range is .8815 to .6935. Its retracement zone is .7875 to .8097. The EUR/GBP traded through the upper level to .8116, but the move was met by aggressive selling pressure. This helped drive the market back through the lower or 50% level at .7875. This is a strong sign of a shift in investor sentiment to the downside.

The short-term range is .6935 to .8116. Its retracement zone at .7525 to .7386 is the primary downside target.

Based on April’s close at .7832, the direction of the market this month will be determined by trader reaction to the 50% level at .7875.

A sustained move under .7875 will indicate the presence of sellers. The first target is the uptrending angle at .7735. There could be a technical bounce on the first test of this angle, but it is also the trigger point for an acceleration into .7525 then .7386.

A sustained move over .7875 will signal the presence of buyers. The first target is a long-term downtrending angle at .8035. This is followed by .8097 and .8116. The high at .8116 is also the trigger point for an acceleration to the upside.

Watch the price action and read the order flow at .7875 this month. Trader reaction to this 50% level will tell us if the selling is getting stronger. The EUR/GBP could continue to weaken in May if the polls continue to show that Brits favor remaining a member of the European Union. If the polls shift the other way, then the EUR/GBP will rally.

The Forex pair will get extremely volatile as we near the June 23 referendum date. Voters will decide on this date whether to remain a member of the EU, or leave. Until then, the polls will determine the volatility of the market.