EURGBP has made upward strides following a downside surprise in the UK inflation report. This upward momentum has allowed the EURGBP bulls to test the resistance zone within the 0.8657-0.8720 range. Although they are halfway towards recovering losses incurred during the November 20 to December 1 correction, significant hurdles lie ahead.
Momentum Indicators and Supportive Factors:
- ADX Confirmation: The Average Directional Movement Index (ADX) is slightly above its 25-threshold, confirming an increase in bullish pressure in the market.
- RSI Reversal: The Relative Strength Index (RSI) has managed to return above its 50-midpoint, indicating a positive trend reversal.
- Stochastic Oscillator: The stochastic oscillator is edging higher, moving out of oversold territory and creating a notable gap from its moving average.
Potential Scenarios:
- Bullish Push: The bullish camp may aim to surpass the congested 0.8657-0.8720 area. This zone includes the 61.8% Fibonacci retracement of the August 4, 2022, to September 26, 2022 uptrend, the June 15, 2022 high, and the 50- and 200-day Simple Moving Averages (SMAs). A successful breakthrough here could open the door for further gains, potentially pushing EURGBP above the recent peak at 0.8765 and achieving a new 7-month high.
- Bearish Defense: Conversely, bearish traders could seek to defend the formidable 0.8657-0.8720 area to protect recent gains. In this scenario, they might aim to drive EURGBP back below the 0.8635 level, marked by the February 10, 2009 low and the 100-day SMA. Further downside movement could remain unobstructed until reaching the 0.8492-0.8504 support area.
In summary, EURGBP bulls are making an effort to sustain their current uptrend, backed by momentum indicators. Yet, their determination will be tested as they approach the challenging 0.8657-0.8720 resistance zone, which marks a significant battleground in the ongoing price action.