The sideways and directionless environment persists in the Fx market with even less interesting action this week. Daily volatility and trading ranges are the lowest since pre-Covid times and have declined as low as during the "calm" days of 2019.

In the absence of clear directional themes, and with increasing risks of a reversal of some of the most complacent trades (such as short USD), we continue to look for short-term tactical opportunities only. In this regard, the EURGBP cross stands out this week from a technical analysis perspective with the potential to stage another rebound higher.

EURGBP has been consolidating sideways for around 6 weeks after the big rebound at the start of April (see chart). The technicals suggest the early April bounce could very well have been the bottom for the larger cycle, and EURGBP may be preparing to take another leg higher once this consolidation is done. The monthly chart also shows a "solid" bullish engulfing candle in April, in support of this view.

The fact that GBP is no longer as undervalued as in December could prove a headwind for the currency. For example, negative data surprises going forward are likely to lead to a large unwinding of positions and a decent correction of the GBP bull trend.

On the 4H EURGBP chart below, we look at the specific price levels that could provide bullish setups.

During the consolidation, EURGBP has formed a gradually descending retracement formation with two lower lows and two lower highs. Strong bullish pressures were evident in the two cases when EURGBP fell below 0.86, which resulted in the two lows being created. 

EURGBP is now making another attempt below 0.86, with this one looking a little more sticky due to the most recent price action and the tendency of the consolidation to reach lower levels. However, technical support from the consolidative formation comes in around 0.8550-0.8520. These levels also coincide with local lows from March and February.

Wait for EURGBP to reach another lower low, and then look for bullish signals and patterns around the 0.8550 support area. The RSI indicator has been tracking the lower lows each time, and it can give an important signal on a potential third low, especially if it comes with bullish RSI divergence (i.e., RSI fails to make a lower low).

A bounce in the price action at support coupled with weakening momentum of the bearish leg (as tracked by the RSI) would be a "solid" signal to initiate a long position. This would allow for a tighter stop loss placement as well as a higher risk-reward.

Entry: 

• Wait for a lower low and look to enter on bullish signals in the 0.8520-0.8550 support area

Stop: 

• Below the 0.8520-0.8550 support;
• Stop can also be placed below 0.8500 to allow some more breathing room

Targets:

• 1st - 0.8600 zone
• 2nd - 0.8650-0.8670

• N/A; (AUDUSD and EURCHF trades not triggered yet)