- EUR/GBP gains traction for the third day in a row and rises to a new yearly high on Wednesday.
- The previous day’s up move confirms the breakout of the resistance of an inverse head-shoulder-shoulder pattern.
- The stage now looks set for a move towards testing an almost year old downtrend line.
The EUR/GBP cross extends its strong weekly gains and advances for the third day in a row on Wednesday. The momentum has lifted the pair to a new yearly high, around the 0.8485-0.8490 region during the first half of the European session.
The common currency continued to be supported by optimism about the possibility of a diplomatic solution to end the war in Ukraine. Aside from this, expectations that the European Central Bank will ease its ultra-loose monetary policy before the end of the year to further tame rising inflation further underpinned the euro.
On the other hand, the fact that the Bank of England had softened its language on the need for further rate hikes acted as a headwind for the British pound.
The combination of supportive factors allowed the EUR/GBP cross to build on the previous day’s break above the 0.8450 region, the resistance of an inverse head-shoulder-shoulder pattern.
A further move beyond the technically significant 200-day SMA and bullish technical indicators on the daily chart support the prospects for a further short-term move higher in EUR/GBP. Therefore, some continuation strength towards the test of the descending hurdle of a trend line, around the 0.8535-0.8540 region, remains a distinct possibility.
On the other hand, the pattern’s resistance breakout point around 0.8450 now seems to defend the immediate drop. Any further pullback could still be seen as a buying opportunity near the 0.8430 horizontal level. This, in turn, should help limit the drop near the 0.8400 level, which should act as a strong base for the EUR/GBP.
EUR/GBP daily chart
EUR/GBP technical levels
Source: Fx Street
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