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Daily oscillators are at stretched levels and as we highlighted yesterday we would not chase the move lower, with EUR/GBP failing to close below the April and May lows around 0.8400.
We are seeing negative divergence on the daily stochastic, suggesting a reversal could be on the cards, while we have also seen the second hammer exhaustion pattern in the last four days. In UK trade tonight (19:00) we hear from a number of BoE officials and the prospect of these members (including Mark Carney) pushing back on rate expectations is real. Sterling could sell off in this environment.
We continue to feel the pair could trade lower over the medium-term, but given its oversold nature, we believe traders could sell rallies. Given the level of strong support seen under 0.8400, we also feel aggressive traders could look to buy at spot levels (0.8412), with a stop at 0.8380 and a potential target of 0.8475. This would take us to our proposed sell limit level.