Trade of the week - EUR/GBP Analysis: Rebound fades, bearish signals emerge - Watch the levels as we head into the last week of February. Is breakdown below 0.8230 on the horizon?
Chart of the week – EUR/GBP
The prior four weeks of rebound seen in the EUR/GBP cross pair from its 20 December 2024 swing low area of 0.8230 to 21 January 2025 swing high area of 0.8460 is likely to be a corrective rebound (“dead cat bounce”) sequence within its medium-term to major downtrend phrase rather than a bullish reversal as price actions failed to break above its downward sloping 200-day moving average convincingly.
In addition, several technical analysis elements are advocating for a potential bearish breakdown below the recent 0.8230 swing low of 20 December 2024 which is also a long-term secular range support in place since January 2016.
Fig 1: EUR/GP major & medium-term trends as of 21 Feb 2025 (Source: TradingView)
Firstly, the daily MACD trend indicator has recently broken below its ascending support on 18 February 2025 and continued to inch downwards below its centreline. These observations suggest a potential continuation of its medium-term bearish trend condition.
Secondly, the 2-year sovereign bond yield spread between German Bunds and UK Gilts resumed its downward trend on 18 February 2025 as price actions inched lower to -2.11% at this time of the writing. A further potential yield reduction in German Bunds over UK Gilts suggests German fixed-income instruments are getting less attractive to hold against UK fixed-income, in turn, supports further potential weakness in the EUR/GBP cross pair.
Watch the 0.8460 medium-term pivotal resistance on the EUR/GBP, and a breakdown with a daily close below 0.8230 exposes the next medium-term support zone of 0.8070/8010 (also the lower boundary of the major descending channel).
On the flip side, a clearance above 0.8460 invalidates the bearish scenario for the next medium-term resistance to come in at 0.8630 in the first step.
