EURGBP Support at .7800 (Jan 7, 2015)

Price could head back to the top of the range near the .8050 minor psychological resistance.

Stochastic just turned down from the overbought area though, reflecting a possible pickup in selling pressure. This might lead to a downside break of support and further losses for EURGBP.

Event risks for this trade include the release of the euro zone retail sales report and the BOE interest rate statement. Consumer spending could climb by 0.3% in the euro zone, slower compared to the previous 0.4% gain, while the UK central bank is expected to keep monetary policy unchanged.

Other factors that could impact this trade are updates on the Greek political situation. A snap election is scheduled to take place later on in the month and an increasing chance of seeing a new government could mean that Greece might not secure its next set of bailout funds.

A downside break from support could mean as much as 250 pips in losses for EURGBP, as this is the same height as the rectangle chart pattern. Less chances of a Greek euro zone exit and debt contagion could keep the pair in range and possibly push for an upside break of .8050.

Bear in mind that the UK just printed a weaker than expected construction and services PMI, the latter of which suggests that growth could slow down. The services index fell from 58.6 to 55.8, reflecting a slower expansion in the industry.

Going long at market with a tight stop below the .7800 mark and a target of .8000 could yield a good return on risk for a day trade. Waiting for a break below support might be a little riskier, as this pair is volatile and can be prone to false breaks.

By Kate Curtis from Trader's Way