Short-term trend reverses on a dime, bulls in charge again

• EUR/GBP is going through a brief crisis.
• The upside will likely be limited to the group of moving averages located in the 0.8450s.

EUR/GBP reversed sharply and rallied on Thursday, gaining over 1.0% on the day so far. The explosive rally suggests that a short squeeze is taking place and the short-term trend has reversed “on a dime”. The bulls are now back in control.

EUR/GBP daily chart

EUR/GBP is likely to rise. The next key resistance level is in the moving average group at 0.8450s. From there, it’s likely a temporary retreat given the speed of the ascent. Any correction is likely to meet support around 0.8385, the July lows.

A sharp reversal warning came from the fact that the Relative Strength Index (RSI) was bullishly converging with price (dashed red lines on the chart). This meant a lack of negative momentum and increased chances of a pullback.

Another warning sign was that EUR/GBP has already reached the conservative target for the bearish move that started at the August 5 high at 0.8322. This raised the possibility that the entire move may have completely run its course, which seems to be the case given today’s price action.