EURGBP has been rallying for the past few weeks but it looks like a large correction is underway.

Price found resistance around the .7900 mark and is showing signs of a pullback to the area of interest at .7400.

This area is somewhere between the 50% and 61.8% Fibonacci retracement levels and a former resistance level. If this holds as support, EURGBP could bounce back up to the previous highs and beyond. A break below this region, however, could put it on track towards testing the support at .7100.

The 100 SMA is above the 200 SMA, confirming that the path of least resistance is to the upside and that the rally could resume at some point. Stochastic is pointing down but is almost in the oversold area so buyers could regain control soon. RSI, on the other hand, is still on the way down so a large correction could be possible.

Event risks for this setup include the ECB statement, as the central bank is widely expected to ease monetary policy. However, the size and scale of their adjustment could determine how euro pairs might react, as a disappointing expansion could still lead to a euro rally.

As for the pound, Brexit fears are still present but traders seem to be less concerned about this scenario. Data from the UK has been mostly week, based on last week’s PMI releases.

BOE Governor Carney has a speech lined up for today and the UK manufacturing production report is due tomorrow, providing additional volatility for pound pairs.

By Kate Curtis from Trader’s Way