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Technical Analysis – EURGBP, 4-hourly: Euro’s uptrend faces test ahead as MACD diverges
December 16, 2013 11:02 amVideo
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The euro has managed to post respectable gains against the pound since the 0.8251 low that was registered on December 2nd.
The euro’s upward trend was confirmed when it managed to make new three-week highs after it broke through the 0.8390 level on its second attempt.
0.8390 has since turned into the more immediate support level, should price head downwards. The other support is the 11-month low reached on the 2nd of December at 0.8251.
So how much should this latest move worry those who are bullish on sterling?
Although the euro’s move has been strong, it could be just a reaction after reaching the 11-month lows. Firstly, there is resistance immediately ahead in the form of the one-month high around 0.8463.
Secondly, although the euro has been on a rising path, this has not been confirmed by the MACD indicator. In other words, the euro has been rising but the MACD has not and this divergence could indicate weakness going forward or that a turning point could be near.
In other indicators, price action is above the 21-period exponential moving average, which is bullish short-term.
The MACD is significantly positive, which is also bullish, but its high level could be signaling overbought levels. Furthermore, the MACD is only slightly above its signal line, which is bullish to neutral.
To sum up, the euro has rebounded strongly against the pound after reaching an 11-month low at the beginning of December. Although it is currently in an uptrend short-term, it still has some work before it starts to look positive on a medium-term basis, while the divergence with the MACD could be a sign of trouble.
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