One of the pairs that perfectly illustrates summer trading conditions is the EURGBP cross. Since June, it just hovers around the 0.90 level.
However, a breakout is imminent. Its consolidation should soon come to an end as it takes the shape of a triangle – it forms lower highs and higher lows.
UK GDP Sent the British Pound Lower Across the Board
Yesterday’s GDP report showed the United Kingdom’s economy contracting by 20.4% in the second quarter of the year. It reveals the impact the coronavirus virus had but also the difficulty the country had in managing the situation.
In comparison, the Eurozone GDP over the same period contracted by only 12%, while the United States managed to keep the damage below 10%. It makes the United Kingdom’s economy one of the most affected in the developed world.
The British Pound lost ground against all peer currencies. The GBPCHF cross failed (again) at the 1.20 level, while the GBPUSD major came back to the 1.30.
Round numbers seem to be the main story for the GBP pairs: 1.20 for GBPCHF, 1.30 for GBPUSD, 0.90 for EURGBP. They reveal investors’ reluctance during the summer but also the uncertainty of the ongoing Brexit negotiations.
EURGBP Technical Analysis
The triangle on the EUR to GBP exchange rate can break in any direction. However, the bias here is that a break lower will gain more traction. Therefore, conservative traders should wait for the pair to break the lower edge of the triangular pattern. Effectively, it means that the price should reach 0.89 before going short.
A move back to the 0.90 will invalidate the breakout, so that is where to place to stop-loss, targeting the 0.87 as the logical target.
One may argue that the EURGBP consolidation looks like a head and shoulders formation too. With the price currently struggling to complete the right shoulder, the neckline’s break points to the measured move roughly at the 0.87 level.