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The euro currency is finally starting to breakdown against the British pound currency, following months of tight range bound trading conditions. The recent announcement from European Central Bank policy member Klaas Knot, who vowed to fight appreciation in the euro, may be straw that broke the camel’s back for the EURGBP pair.
With this new commitment from the ECB to fight currency appreciation the stage is set for more technical weakness ahead. Just this week the EURGBP pair has started to break below the neckline of a notable head and shoulders pattern.
Other factors are also in play contributing to the ongoing decline in the EURGBP pair, namely the British pound. The British pound is starting to breakout higher against the US dollar and commodity-related currencies.
Strength in the British pound is being propelled by the notion that the vaccine rollout in the United Kingdom is going better than many other nations, particularly other European countries, who are struggling to get the adequate amount of vaccinations.
So, the thinking behind the ongoing long British pound trade is that the UK economy could start to come out lockdown quicker and get back to some form of normality once all the vaccinations have been put in place.
Whether this is correct or not remains to be seen, but this is certainly a compelling case for further EURGBP weakness, and particularly since the European Central Bank are starting to jawbone the single currency lower.
Another bearish factor supporting further EURGBP weakness is traders sentiment. According to the ActivTrades Market Sentiment indicator, just some 25 percent of traders are bearish towards the pair at this current moment.
This could mean that the EURGBP pair is set for further weakness as retail traders typically lean against established market trends. It appears that retail traders may be getting on the wrong side of this move already.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that that the short-term trend remains bearish while price trades under the 0.8870 level. Recent rebounds towards the 200-period moving average have also been quickly sold.
Looking at the mentioned time frame, a small head and shoulders pattern is now in play. The neckline of the bearish pattern is close to price, around the 0.8830 level.
If sellers gain control below the 0.8830 level, technical analysis highlights that the EURGBP pair could start to fall by around 90 points, taking the EURGBP towards the 0.8840 level.
Source by ActivTrader.
EURGBP Medium-term Technical Analysis
The daily time frames continue to show an extremely large head and shoulder pattern, which has now been activated, following the recent break under the 0.8860 support level.
According to the overall size of the head and shoulders pattern the EURGBP pair could fall by nearly 400 points if sellers take the bearish pattern to its full downside projection.
In terms of potential sell spots on rebounds, any moves back towards the neckline of the pattern, around 0.8860, may be very attractive for bears at this stage
Source by ActivTrader.
