The EUR/GBP pair is currently navigating a descending channel, reaching levels that suggest it may be oversold. Despite the ongoing downtrend, technical indicators hint that a possible near-term recovery. Traders should exercise caution, especially considering the pair's current oversold status.

Technical Analysis

Downtrend Continuation

The pair continues to exhibit lower highs and lower lows, a classic sign of a downtrend. The adage "the trend is your friend" suggests that further downside pressure is likely, though oversold conditions could temper this.

Key Support and Resistance Levels:

• Relative Strength Index (RSI): The RSI on the 4-hour chart indicates oversold conditions, having remained below the threshold for an extended period. While this typically suggests a higher likelihood of recovery, traders are advised to wait for RSI to exit oversold territory before considering long positions.
• Candlestick Patterns: A bullish Hammer candlestick pattern formed on August 23, hinting at potential reversal. However, this pattern has not yet resulted in a sustained upward move. A break below the Hammer’s low at 0.8453 would indicate further downside risk.

Long-Term Perspective

• The weekly chart continues to show a bearish long-term trend, while the medium-term trend remains bullish. The intraday bias is currently on the downside, and a decisive break below 0.8382 could resume the larger downtrend.
• On the flip side, if the pair holds above 0.8382 and breaks past the 0.8643 resistance, it could signal the end of the downtrend and a shift to a bullish outlook.

Market Implications

• EUR/USD and GBP/USD: Both currency pairs continue to be bid, with EUR/GBP under pressure as the US dollar weakens. This dynamic could contribute to further volatility in EUR/GBP as market conditions evolve.

Strategic Considerations

• For Traders: Patience is key. Monitor RSI and price action around current support levels before making decisions. Watch for a potential break of key resistance levels to confirm a reversal.
• For Analysts: Keep an eye on broader market trends, including USD movements and economic data releases, which could influence EUR/GBP’s trajectory in the coming days.

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