There is a saying in the markets that "when fundamentals and technicals disagree, you side with the technicals" .
Given the recent parade of the Euro bulls telling us that all is well now in Europe, Greece is sorted, Spain can go to the OMT/EFSF/etc and we have seen the worst, EurGbp charts are warning of something completely different... Of course it may be GBP strength rather than Eur weakness...but I just cant see that in the GBP charts. Lets have a look.
The Daily EurGbp chart looks to be forming the right shoulder of a Head and Shoulders pattern whose neckline comes in currently at 0.7985. The measured move target should the pattern play out, would be close to 220 points from the break or retest/fail point which would come in very close to the lows reached earlier this year at 0.7753.
The current decline should either copy leg aX ( target 0.7955) or AB ( target 0.7942) with the Fib confluence at 0.7935, an 113.0% extension after an 88.6% retracement of AB.
Giving further credibility to the idea of the decline is the monthly chart.
During the past 5 months we have been in a consolidation phase, with the market caught in between the 50% and 61.8% Fibs of the 2007-2008 rally (0.6535// 0.9801). The current retracement of that rally appears to be that of an AB=CD decline of which we are currently finalising the CD leg whose measured move target lies at 0.7350 which is also confirmed by Fib confluence after the 50-61.8 Fib retracement of AB would target the reciprocal 1.618-200.0 extension zone.
Looking at these charts leads me to believe that the Eur bulls have this completely wrong and something is about to go pear shaped yet again in Europe over the coming weeks and months.
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