EUR/GBP – Inverse Head and Shoulders Forming?

It’s been a strong run for the pound after the UK avoided a no-deal Brexit that would have been a massive setback for the economy as it grapples with its third national lockdown.

The pound overcame a number of hurdles in that period, smashing through the 200/233-day SMA band before hitting a new eight month low late last week.

Since breaking through what looked a key support level , the euro has had a little more fortune against the pound, breaking through a descending trend line on the 4-hour chart and opening the door to a potential correction.

The longer term trend potentially still favours the pound but in the interim, the euro may recoup some of its losses.

Key support below is 0.8860, the longer term support and 61.8 fib of last weeks lows to Friday’s highs. A bullish rotation off this could see 0.8920 emerge as an inverse head and shoulders neckline.

Suddenly, the prospects of a correction are increasing, with a break of that neckline potentially opening a move back towards 0.9, based on the size of the formation. This would coincide with the cluster of SMAs (55/89 and 200/233 bands).

A move below 0.8860 on the other hand and this is looking less promising. It should be interesting to watch in the coming sessions.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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