GBP/EUR Likely to Recover From Monday's Collapse Suggests Latest Technical Study
The Pound to Euro exchange rate collapsed on Monday morning, falling from Friday’s close of €1.1944 to open at €1.1796, due to the outcome of the French presidential election.
The reason for the surge in the Euro is relief that Le Pen will probably not now win – of all the candidates Macron is the one with the best chances of beating her, and besides, he actually won the largest share of the vote in the first round too, further improving his situation.
From a technical perspective, the big gap down this morning was probably not sufficient to reverse the short-term uptrend.
The pair may have lost over a hundred points overnight but it failed to pierce convincingly below the upper border of the triangle it recently broke out of last Tuesday – the breakout, therefore remains valid.
The pull-back which has thus formed following the breakout is actually quite a common occurrence and is known as a ‘throwback’.
Usually, throwbacks are not as dramatic as this one, but it is still probably the same technical feature, just a more volatile example.
Throwbacks are great opportunities for traders to enter the market at low risk and this throwback offers an excellent low-risk/high reward buying opportunity.
For those looking to buy Euros such a feature would suggest it could be wise awaiting the recovery.
Our base-case is that the market will go higher and fill the gap, then moving even higher to a minimum target at 1.2260, as mentioned in our week ahead forecast.
However, if for any chance, it goes down it will not have to move much lower to confirm a break back inside the triangle, a move just below the lows of the day at 1.1750 probably being sufficient.
Another reason for our bullish forecasts is the fact that chart ‘gaps’ almost always fill and most fill quite quickly.
This is not likely to be one of those which does not fill quickly as these form in rapidly trending markets and occur in the direction of the trend.
The breakout higher from the triangle was definitive and valid, and is likely to result in a rally to 1.2260 eventually based on technical means of calculation using the height of the triangle as a guide.
