Interesting Price Action on EUR/GBP Currency Pair

01/14/2009 12:09 pm EST

Focus: FOREX

Chart
(Price on 1st pane, Slow Stochastics on 2nd pane; uptrend line in green; horizontal support/resistance lines in yellow; chart patterns in magenta; Fibonacci retracements in grey; 50-period simple moving average in light blue.)

Price action on the key EUR/GBP cross (a daily chart of which is shown) has just bounced up off a significant uptrend support line after having dropped dramatically (almost 1,000 pips) since the very beginning of the year. This uptrend line has been in place since at least late October of 2008.

The current bounce off this trendline coincides with a key 61.8% Fibonacci retracement level (the low-to-high retracement span being measured from the swing low to the same trendline on 11/28/2008 all the way up to the recent long-term high reached on 12/30/2008).

Going forward, the uptrend line should continue to serve as strong dynamic support for the pair. Adding strength to this bounce are oscillators like the displayed Stochastics, which are pointing up from extremely oversold. A continuation of the current bullish bounce off trendline support should meet initial resistance in the 0.9300 region.

In the event of any subsequent news-driven breakdown of this support later in the week, if it also breaks below the above-mentioned 61.8% level (around the 0.8850 region), price could target further support in the 0.8650 region.

By James Chen, Chief Technical Analyst, FX Solutions

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