EURGBP
The EUR/USD pair reversed sharply from the highs as the market formed a rising wedge and a bearish divergence with the RSI. The current move lower has broken the series of higher lows the market formed on its way up from the 1.17 level, and the bias is that the bearish price action will continue.
On the economic data front, the focus today is on the EU economic forecasts. The EU area has posted two consecutive quarters of economic contraction, in sharp contrast to the United States that grew over 6% in the first quarter of the year.
As such, the gap between the two economies is poised to increase in the future, justifying a higher dollar. Speaking of a higher dollar, the strength diverged from the stock market, that remains well bid on every dip lower.
A rising wedge is a reversal pattern, and the market typically forms a bearish divergence with the RSI as well. It did so this time, suggesting further downside possible.
Bears may want to sell the EUR/USD short, placing a stop-loss order at the highs. As for the take profit, bears may either use a 1:3 risk-reward ratio, or stay short for the rising wedge’s full retracement.
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