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The euro currency is testing towards the worst levels of the year against the British pound as crows flows from sterling and general weakness in the EURUSD pair keeps the overall downtrend in the pair firmly intact.
Last week the pair rallied towards the 0.8680 level as the pound slumped over COVID-19 and Brexit concerns, however, with infection rates falling in the UK and the EU pausing legal action against the UK over Northern Ireland protocol.
Additionally, the pound has been strengthening broadly in the currency market as the Bank of England remains in high spirits. BOE member Gertjan Vlieghe said on Monday the central bank should keep stimulus in play until 2022.
At present, the technicals look bleak for the EURGBP and the well-establish bearish trend is threatening to sink the pair into a much-lower trading range between the 0.8400 to 0.8200 levels.
One of the biggest red flags for me that indicates that the EURGBP pair is about to drop even further is the high levels of bullish sentiment towards the pair, despite a loss greater than 150 points taking plus over the last week.
The ActivTrader platform shows that bullish sentiment has increased significantly over recent days as the pair decline, with some 92 percent of traders still expecting more upside in the EURGBP pair.
One-way bearish sentiment skews about 90 are rarely correct. And we should consider that the overall trend is strictly bearish at present. Selling rallies is the preferred strategy while the pair trades under the 0.8680 level.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that the EURGBP pair is trapped inside a large triangle pattern, with the pattern located between the 0.8680 and 0.8520 levels.
Typically, when these types of patterns form it suggests that a big directional move is coming once the price move either side of the mention price pattern
With the price approaching the bottom of the pattern it appears that a bearish breakout is nearing and the EURGBP pair could collapse towards the 0.8400 level at any time.
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EURGBP Medium-term Technical Analysis
The daily time frame shows that the EURGBP pair remains vulnerable to further declines as the price is now testing back towards a key trendline around the 0.8500 support level.
Other negative technical factors weighing on the EURGBP pair include a long-term bearish head and shoulders pattern, and a broadening expanding wedge pattern. Both have a target of 0.8200.
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