EURGBP Technical Analysis: A Crucial Resistance Zone In Focus
04 August 2023
The recent price movements of the EURGBP pair have caught the attention of traders and market analysts worldwide. The past couple of months have seen this currency pair sculpting an inverse head and shoulders pattern - a classic technical indicator hinting towards a potential bullish reversal after a bearish trend.
The components of this pattern include a left shoulder formed in June, a deeper trough or the head created throughout July, and a right shoulder that extended from the end of July into early August. This pattern, while not a guarantee, often sets the stage for a potential upside breakout.
However, the EURGBP currently finds itself grappling with a significant challenge - a formidable resistance zone. This zone is composed of two key elements: the neckline of the inverse head and shoulders pattern (indicated by the yellow line) and a sustained downtrend line (highlighted with a red line).
Yesterday's trading activity saw the EURGBP making a valiant attempt to break past this crucial resistance zone. However, the currency pair was met with a strong rejection. This was evident in the formation of a 'shooting star' candlestick - a candle with a small body at the bottom and a long upper wick. The presence of this candlestick often signals that sellers have taken control and a potential downturn may be imminent.
Given this setup, traders find themselves considering two potential scenarios:
In the bearish perspective, as long as the EURGBP continues to languish below the yellow neckline, the sentiment remains negative. This could indicate that the currency pair is likely to experience further declines, prompting traders to favor short positions.
On the flip side, from a bullish standpoint, if the EURGBP manages to decisively breach and sustain above both the yellow and red lines of resistance, it would activate the inverse head and shoulders pattern. This could signal an incoming wave of bullish momentum, presenting a strong case for traders to consider long positions.