Following GBP/USD capitulation late last week, EUR/GBP rose to 9 months high, entering into the consolidation range found between Jan – Apr ’12.
Using Ichimoku indicator, we have 2 signals that hints at higher EUR/GBP levels – Kumo Twist and also the Kumo Breakout. However, we have both the Tenkan (blue) and Kijun Sen (red) entering the Kumo, hence from a pure Ichimoku interpretation perspective, there is still uncertainty with regards to the magnitude of bullish follow-through, though the clarity of the directional bias is much clearer compared to having price levels trading within the Kumo a few weeks before.
From a Support/Resistance line perspective, we have 0.843 to 0.859 potentially acting as a layer of resistance against a play of 0.859 – 0.90. More pertinently, price is still a fair distance away from the previous swing high of 0.85, which will act as a strong reference point for many bulls to potentially take their profits.
It is also important to note that EUR/USD hasn’t really been moving much, having a divergence (volatility wise) with its fellow European counterpart. A break in either direction for EUR/USD could easily send EUR/GBP much higher or perhaps lower with the Senkou Span A (yellow line of Kumo) providing support.
Hourly chart shows that price has been trading very close to the top of a newly formed channel, with a pullback during Friday’s European hours being reversed in short fashion, before closing last Friday close to the high of the week. Bullish momentum still remains strong, and the likelihood of price trading along the top channel remains high, with channel bottom clearing 0.836 (previous swing low from the pull-back). This give us roughly the same bias as the weekly chart – moderately bullish, with a chance of price trading lower but broadly supported.