Finds temporary support at the bottom of the range

• EUR/GBP has touched support at the bottom of the range.
• It is converging with momentum and could be about to pull back.

EUR/GBP extended its breakout from a rising channel and fell to the major support level at 0.8385, which is at the bottom of a wider range for the pair.

EUR/GBP daily chart

The trend is easy in both the short and medium term and given the principle that “the trend is your friend”, this means that the odds favor more downside. A close below 0.8380 would provide confirmation of a lower continuation to a likely target at 0.8342, the 61.8% Fibonacci retracement of the previous move down.

At the same time, bears should be cautious. There are growing signs that EUR/GBP could bottom out.

First, the pair has reached a solid level of historical support at the base of its range.

Second, the most recent downward move over the past few days has been accompanied by relatively weak momentum. The price is now showing a bullish convergence with the MACD momentum indicator (dashed red lines). This happens when the price drops to a new low, but the momentum doesn’t match. This is so if the August 29th MACD level is compared to the September 20th MACD. The price has declined over time, but the MACD has not. Convergence is a sign that a bigger pullback could be forming.

Third, EUR/GBP forms a bullish hammer candlestick on September 20 (today) and this could also suggest a short-term reversal in progress, but this is tentative and depends on the final closing level for the day.