EUR/GBP Price Forecast: Hesitates near 0.8550 with the risk-off mood capping rallies

The Euro (EUR) is looking for direction against the British Pound (GBP) on Monday, following a sharp reversal last Friday, with bears eyeing the bottom of the last two weeks’ trading range, just below 0.8550. Negative pressure seems to have eased, but the risk-off market mood, amid rising tensions in Iran and rising Crude prices, is capping Euro rallies for now.

The pair retreated sharply on Friday as Federal Reserve (Fed) Chairman Kevin Warsh boosted hopes of upcoming interest rate hikes, affirming that policymakers “have work to do” on inflation. Investors saw these comments as a sign that the Fed will honour its commitment to bring inflation to the 2% target, although Warsh did not mention rate hikes in his speech.

Technical Analysis: Key support is at the 0.8530 area

EUR/GBP trades at 0.8556, halfway through the last few weeks' trading range, although the impulsive reaction from levels near the 0.8580 resistance area and the lower high printed on Friday have provided fresh hopes for bears. Momentum indicators in 4-hour charts have slid into negative levels, with the Relative Strength Index (14) around 40 hinting at modest bearish momentum, while the Moving Average Convergence Divergence (MACD) fell below zero, showing waning upside pressure rather than a clear directional break.

On the downside, bears are likely to be tested at the August 25 low near 0.8545, although the key support level is the August 12 low, at 0.8531. A break below here will confirm a multiple top between 0.8575 and 0.8585 and shift the focus towards the July 20 and 21 lows at 0.8485 and 0.8490 respectively.

On the upside, Friday's top, at 0.8576, and the July and August peak near 0.8585 are likely to pose significant resistance for bulls. Above there, the next target is a previous support area just above 0.8600 (June 24, 30 lows).