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EURGBP Outlook: Testing Trend-line Resistance Ahead of ECB

EURGBP Outlook: Testing Trend-line Resistance Ahead of ECB

What’s inside:

  • EURGBP currently testing trend-line back to last year
  • Vulnerable here as ECB meeting approaches in a few hours
  • Multi time-frame look (short-term pattern may develop)

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EURGBP has been persistently higher over the past couple of weeks, especially after Sterling broke down below the 12400 level versus the US Dollar, a level it held in place since the latter part of January. The past couple of sessions have been a battle up against the trend-line running down off the 10/7 spike high. Yesterday, the cross-rate put in a small reversal bar after attempting to clear above; we’ll see from here how it wants to respond. It’s currently treading slightly higher ahead of today’s ECB meeting.


Created with TradingView

On the 4-hr, the trend has been very clean, and with yesterday’s small reversal and the trend-line rising up from the 2/23 low breaking, weakness could be in store soon. If we get even more granular, a small head-and-shoulders is possibly developing on the hourly time-frame. A drop below the neckline will be needed for the pattern to be validated; the outcome of the ECB may not allow for a smooth trade here.

EURGBP: 4-hr/1-hr

Created with TradingView

Getting back to the daily, if EURGBP breaks materially lower, the price sequence will bring further into focus what is becoming a complex head-and-shoulders pattern now turning into a massive wedge extending back to July. From a macro standpoint, a little more time coiling is the preferred path on this end; it could result in an explosive move one way or another depending on the direction of the break.

On a break above the trend-line, and if immediately (i.e. ECB-induced), the short-term H&S pattern won’t trigger. Additionally, the break won’t come at a point where a wedge has developed enough to call it a sound pattern break, at least not on this end. But nevertheless, a break above the trend-line will be considered a bullish event, with the still possible left shoulder level of 8724 as potential resistance and then 8852 following.

In a few hours from now, Draghi and Co. will be announcing the ECB’s latest decision on monetary policy, and with no changes expected all eyes/ears will be on Mario Draghi in the press conference. (See the economic calendar for details.) If volatility is to stem from this meeting, it will come on the heels of any unexpectedly dovish/hawkish language outside of market expectations, which at this time are rather muted. But with that said, as always, vigilance is wise when faced with headline risk.

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---Written by Paul Robinson, Market Analyst

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.