The reaction expands after extreme bear movement

• EUR/GBP saw a steep decline in August but appears to have bottomed out and is consolidating.
• While the trend remains bearish, there are signs that the bears may be exhausted and a reversal could be on the horizon.

EUR/GBP continues its countertrend reaction after the accelerated decline in August took it temporarily outside the boundaries of its downtrend channel (shaded circle). This breakout is often a sign of downtrend exhaustion, however, it’s a bit too early to tell.

EUR/GBP has now bottomed out and is moving in a sideways bounded market mode.

EUR/GBP 4-hour chart

So far, the recovery has been quite shallow and is currently covered by the 50-period simple moving average (SMA) resistance.

EUR/GBP failed to break decisively above the SMA or line of highs at 0.8435, suggesting a reversal remains elusive.

The pair is likely to continue sideways until it hits resistance from the upper channel line at around 0.8450.

The medium-term trend remains bearish, however, suggesting there is still a chance for a lower extension, although the break of channel exhaustion lowers the chances.

That said, a break below 0.8406 (September 3 low) would pave the way for further weakness towards a downside target at 0.8385 (July 17 low).

To reverse the short-term trend, the bulls should decisively break above the 50 SMA. A decisive break would be one accompanied by a long green candle that closed close to the highest or three green candles in a row that closed above the SMA.

The long-term trend (weekly chart) is still bearish, while the medium-term trend is bullish.