EUR/GBP Forecast November 20, 2015, Technical Analysis

The EUR/GBP pair fell initially during the day on Thursday, but found enough support just below the vital 0.70 level to turn things around and form a hammer. The hammer of course is a very bullish sign, and as a result we feel that the market could very well bounce from here. If we break the top of this hammer, we feel that the market could grind its way back towards the 0.72 level. That’s not to say that it’s going to be an easy move, we don’t think that at all. Ultimately, you have to look at both of these currencies, as they are both very vulnerable at the moment. However, the one thing that we do recognize is that the Euro is oversold, so a bounce might be more or less thought of as a “relief rally.”

A relief rally is no reason whatsoever to buy a market, as it is just a simple effect of technical levels. After all, it is a large, round, psychologically significant number, and we have a market that is oversold. At that point in time, it makes quite a bit of sense that perhaps the sellers will have given up a bit. A lot of times people who are well into profit at this point are willing to take those profits as they do not have the wherewithal to hang onto the trade.

Ultimately, the fact that we formed a hammer for both Wednesday and Thursday suggests that perhaps the bounce is imminent. On the other hand though, if we break down below the 0.69 level, we feel that point in time that this pair really comes undone, perhaps going as low as 0.60 over the longer term.

In order for that to happen though, we would have to see the EUR/USD pair break apart, perhaps even more significantly than we have seen recently. We don’t anticipate that happening, so we think that the bounce will more than likely offer short-term buying opportunities, but ultimately end up being a much stronger selling opportunity. The one thing you can count on though is going to be volatility.