EUR/GBP Price Forecast: Bears remain in control with 0.8550 support area on focus

The Euro (EUR) extends losses as the British Pound (GBP) seems to be coping better with the moderate risk-off mood amid growing tensions between the US and Iran, as Washington pledged an “economic D-Day” on the Islamic Republic. The EUR/GBP dives for the third consecutive day on Monday, trading at 0.8555 at the time of writing, about 0.3% below last week’s highs.

The calendar is thin on Monday, and data released on Friday showed fairly strong economic activity in both the UK and the Eurozone, while the UK's Retail Sales disappointed in July.

Analysts at ING highlight that, in the current "low volatility environment, sterling is probably still enjoying some carry demand given it is one of the highest, volatility-adjusted currencies in G10." Against that backdrop, they judge that "EUR/GBP can probably hang around these 0.8550 levels for the time being," with the cross expected to remain broadly steady as investors continue to favour the Pound’s carry profile.

Technical Analysis: Key support is at 0.8530

EUR/GBP trades at 0.8556, halfway through the last four weeks' range, between 0.8530 and 0.8585. The immediate bias, however, has turned bearish and momentum indicators in the 4-hour chart are modestly soft. The 14-period Relative Strength Index (RSI) is drifting toward the mid-40s and the Moving Average Convergence Divergence (MACD) turned slightly negative, which hints at waning upside pressure while keeping the cross in a range-bound configuration.

Bears are likely to be tested at the August 19 low, at the 0.8550 area. Further down, a breach of the July 24 and August 12 lows, at the 0.8530 area, would confirm a Double Top formation at 0.8585, whose measured target lies a few pips below the late July lows, at 0.8483.

On the topside, immediate resistance appears at Friday's top of 0.8575, followed by the top of July and August's trading range, at the mentioned 0.8585 area.