EUR And GBP: Bearish Reversal Ahead?

Dear Traders,

We saw some profit taking Tuesday with both euro and pound giving up some of their recent gains versus the U.S. dollar. We were thus able to pocket some profit with our short entries. The modest rebound happened before both currency pairs were poised for another bullish run towards higher highs. In thin Asia trading the euro took a short glimpse above 1.23 but was unable to hold above that level. The pound sterling climbed to a high of 1.3836 before it dropped back below the 1.38-barrier.

Whether we will see further gains in the EUR/USD and GBP/USD depends on the market’s risk appetite for euros and pounds. The euro recently received a boost from speculation, the ECB could end its bond-buying program earlier than the market currently expects but we bear in mind that it is a sensitive time for the ECB. A strengthening euro could damp prices, giving ECB policy makers an excuse to keep monetary policy steady, at least until after the end of QE, which is set to expire in September.

Apart from fundamental drivers, we keep tabs on technical barriers. On a daily basis, both pairs are still overbought, increasing the chances of steeper corrections. For the time being we expect the EUR/USD to trade between 1.2350 and 1.21.

Traders should keep an eye on the Eurozone Consumer Price Report today at 10:00 UTC.

The British pound remained below 1.3850 and as long as that barrier holds, we see chances in favor of a bearish reversal, provided that the cable drops below 1.3730. Lower targets could be around 1.3690 and 1.3610.

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