- EUR / GBP saw some selling on Monday, although it lacks strong continuation.
- The formation of a rectangle could be classified as a bearish continuation pattern.
- Mixed oscillators on 1 hour and daily charts warrant some caution for aggressive investors.
The EUR / GBP cross moved slightly lower during the first half of trading action on Monday, staying close to the 0.8450 region during the European session.
The UK hinted at a compromise on post-Brexit trade rules in Northern Ireland. This, in turn, was seen as a key factor behind the better relative performance of the British pound and put some pressure on the EUR / GBP cross. The decline, however, remains buoyed amid a modest rebound in demand for the common currency, which drew some support from a subdued demand for the US dollar.
Furthermore, the lowered odds of an early tightening of monetary policy by the Bank of England prevented investors from opening aggressive bullish positions around the British pound. Investors also seemed reluctant and rather preferred to wait on the sidelines before the European Central Bank meeting on Thursday. This further helped limit any significant declines for the EUR / GBP cross, for now at least.
Looking at the technical picture, the bulls, so far, have struggled to capitalize on last week’s bounce from the lowest level since February 2020. The rally remained limited near the upper limit of a week-old trading range, which constitutes the formation of a rectangle. Given the recent sharp decline, the rectangle could still be classified as a bearish continuation pattern.
Meanwhile, the intraday slide so far has shown some resilience below the 200 hourly SMA. Additionally, technical indicators on the 1-hour chart have been gaining positive traction, although they have not yet fully recovered from bearish territory on the daily chart. This also warrants some caution before opening aggressive directional positions around the EUR / GBP cross.
From current levels, the bulls are likely to wait for a strong continuation buy beyond the 0.8465-70 region before opening new positions. A sustained move above this region should allow the EUR / GBP cross to regain the key psychological level of 0.8500. The recovery momentum could extend further towards the next relevant hurdle near the 0.8525-20 zone en route to 0.8550.
On the other hand, the 0.8420-15 region, or the lower limit of the aforementioned trading range, should continue to defend the immediate decline. A convincing breakout below will be seen as a further trigger for the bears and make the EUR / GBP cross vulnerable to breaking below the 0.8400 level. The downward move could eventually drag the cross to the 0.8335 support area.
EUR / GBP 1 hour chart
EUR / GBP technical levels
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