EUR GBP pares losses after breakdown

On Tuesday, EUR/GBP pared some of its losses from Monday, when the currency pair tentatively broke down below a key uptrend support line going back to August’s lows. Monday’s breakdown also pressured EUR/GBP below its 50-day moving average, which has been shadowing the noted uptrend line since late August.

Since hitting an eight-month high of 0.7491 just last week after trending to the upside for the past three months, EUR/GBP has spent the past week retreating sharply from that high.

From a longer-term perspective, EUR/GBP continues to trade within a strong downtrend going back over two years to the 0.8765-area high in August of 2013. A long-term downtrend line that extends back to that high was just closely approached by the noted eight-month high of 0.7491 last week.

Could the current breakdown below the short-term uptrend line and 50-day moving average signify a potential resumption of the long-term downtrend after the pullback rally of the last few months? This could quite possibly be the case if the currency pair follows through on Monday’s breakdown and continues to seek lower support levels.

With the European Central Bank (ECB) due to hold its press conference on Thursday, comments from ECB President Mario Draghi could prompt a significant move for EUR/GBP. In the event of a sharp fall for the euro as a result of this press conference, the next major downside target for EUR/GBP is around the 0.7200 support level, last hit in late September. Any further break below 0.7200 should also break below the 200-day moving average, which could intensify the currency pair’s bearish bias. In that event, a further key downside target is around the 0.7000 psychological level.