- EUR/GBP rose for the second day in a row and soared to one-week highs.
- The recent price action constitutes the formation of an inverted head and shoulders pattern.
- Sustained strength beyond the 200-day SMA hurdle will confirm a short-term bullish breakout.
The crossing EUR/GBP gained strong traction for the second day in a row on Tuesday and jumped to a high in over a week around the 0.8450 region during the first half of the European session. This also marked the fourth day of a positive move in the previous five and helped the cross capitalize on its recent bounce from levels below 0.8300.
Looking at the bigger picture, the recent price action constitutes the formation of a bullish inverted head and shoulders pattern on the daily chart. Neckline resistance is set near 0.8400 and is closely followed by the 200 DMA near the 0.8465-0.8470 region, which if breached would confirm the bullish pattern.
With technical indicators on the daily chart remaining in bullish territory and still far from overbought, the EUR/GBP cross could accelerate the move and aim to reclaim the key psychological 0.8500 level. Some follow-on buying has the potential to push price towards the next relevant hurdle near the 0.8550 region en route to the 0.8570-0.8580 zone.
On the other hand, the round 0.8400 level now seems to protect the immediate downside. Any further decline could now be seen as a buying opportunity near the 0.8360-0.8350 horizontal zone. This, in turn, should cap the drop near the 0.8320-0.8315 area, which should act as a solid short-term base for the EUR/GBP cross.
A convincing break below, leading to a further break of 0.8300, will nullify the constructive setup and shift the bias in favor of bearish traders. The EUR/GBP cross would become vulnerable to accelerate the decline towards the 0.8255-0.8250 region before falling to a multi-year low around the 0.8200 round level.
EUR/GBP daily chart
Additional technical levels
Source: Fx Street

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