EUR/GBP technical analysis: is it time to shine?

The currency market is made of pairs. A pair reflects the value of one currency in terms of another, and the most popular and liquid currency pairs are called majors.

One of the currencies in a major pair is the US dollar – the world’s reserve currency. Therefore, it is only logical for majors to be more liquid and preferred by traders wanting to trade big and looking for quick market moves.

All other currency pairs are called crosses. Sure enough, different brokers refer to them in other terms, such as minors or exotic pairs, but the simplest way to categorize all pairs is to look at them to see whether they have the US dollar as one of the two currencies or not. If they do, they are majors; if they don’t, they are crosses.

Trading a cross pair is more challenging than trading a major one. A cross does not move that much, has a bigger spread, and is less liquid.

But opportunities do exist. A cross moves based on the differences between the two majors.

In this case, a bullish EUR/GBP outcome can only happen in the following scenarios. First, the EUR/USD advances more than the GBP/USD. For instance, in the next two months, EUR/USD gains 10% while GBP/USD gains 5%. The positive difference will be seen in the EUR/GBP cross.  

EUR/GBP has been complicated to trade since the UK’s decision to leave the European Union in 2016. Flows in and out of the cross were chaotic, unlike anything before.

But the dust settled.

According to the Elliott Waves theory, market movements are either corrective or impulsive. An impulsive structure must have a much longer segment than the others – which is not the case here.

Hence, EUR/GBP is in a corrective phase that might have just ended.

More precisely, a triangle.

The last segment of a triangle, labeled with the letter e, is usually also a triangle (seen above in blue). The market already broke above the b-d trendline, suggesting the triangle of a lower degree is over.

Now, it should head for the b-d trendline of a larger degree (the black one), seen at 0.91. If it drops below 0.85 again, the bullish scenario gets invalidated. But if it doesn’t, this is a setup with a nice risk-reward ratio.

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