Bulls Await Descending Triangle Breakout, Focus Remains on ECB

• EUR / GBP climbs to a week and a half highs ahead of Thursday’s ECB meeting.
• The technical setup favors the bulls and supports the prospects for additional earnings.

The EUR / GBP cross has built on this week’s positive move and gained traction for the fourth day in a row on Thursday. Momentum has led the cross to a week-and-a-half high, around the 0.8640-45 region during the first half of the European session.

The mentioned zone marks a downward trend line, which extends from the 0.8715-20 region touched in April. This, coupled with strong horizontal support near the 0.8565-60 area, constitutes the formation of a bearish descending triangle on the daily chart.

The collision between the EU and the UK over the Northern Ireland protocol, coupled with new nervousness over the coronavirus, have continued to act as a headwind for the British pound. This, in turn, supports the prospects for an eventual breakout to the EUR / GBP, although the bulls appear reluctant ahead of the ECB.

Meanwhile, technical indicators on the hourly charts have been gaining positive momentum and have also rebounded from bearish territory on the daily chart. This adds credibility to the positive short-term outlook for the EUR / GBP cross. Some subsequent purchases above the 0.8645 region (triangle resistance) will reassert the constructive setup and lift the crossover towards the 0.8670 region. Momentum could extend further and allow the bulls to rebound to the 0.8700 level.

On the other hand, any significant pullback now could be seen as an opportunity to initiate new bullish positions. This should help limit any further drops and defend the 0.8600 level, at least for now. A sustained break below this level will negate the positive bias and make the EUR / GBP cross vulnerable to slide to retest the 0.8565-60 support, marking the lower end of the aforementioned descending triangle.

EUR / GBP daily chart

EUR / GBP technical levels