EURGBP Bullish Flag Pattern (Aug 05, 2016)

Price has formed a bullish flag on the channel resistance at the .8475 area, with an upside breakout likely to start a sharper climb.

The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside and the rally could carry on. However, stochastic is on the move down so price could still follow suit and make a test of the channel support at .8375 before resuming its climb.

A smaller pullback could last until the mid-channel area of interest, which lines up with the dynamic inflection points around the moving averages. Price could draw support from the .8400-.8450 psychological levels, at which several buyers could be waiting with their long orders.

The BOE cut interest rates by 0.25% in their latest policy statement as expected, but the central bank surprised with an increase in their bond purchase program from 375 billion GBP to 435 billion GBP. This additional stimulus could weigh on the pound in the near term due to the large increase in money supply.

Meanwhile, data from the euro zone has been mostly in line with expectations, suggesting that the ECB probably won't add to their easing efforts anytime soon. German factory orders and French trade balance are up for release today and strong results could spur an upside breakout from the flag formation.

On the other hand, downbeat data from the region could revive talks of additional ECB easing, possibly taking EURGBP to the middle of the channel or towards support. Only the Halifax HPI is due from the UK today.

By Kate Curtis from Trader's Way