EURGBP Tests Neckline of Head and Shoulders Ahead of Lagarde’s Speech
EURGBP is trading lower in today’s Asian session ahead of ECB President Christine Lagarde’s speech. The currency pair is trading around 0.8880, down from where it opened today at 0.8899. Will the euro’s weakness carry on for the rest of the day or can it stage a comeback?
It’s worth pointing out that the British pound is stronger against its major counterparts this morning. There has been no catalyst which has led analysts to speculate that the currency’s strength could be because GBPUSD weakened during the latter part of Friday’s trading. It could be that some market participants went long on the pound seeing that it was at a lower price. With this, the pound strength also carried over to EURGBP.
There are no reports due from the UK today. However, Germany’s industrial production report is eyed at -16.0% for April.
Then later today, at 2:45 pm GMT, ECB President Lagarde is scheduled to speak before the European Parliament Economic and Monetary Affairs Committee. Investors will be looking for clues if the ECB plans to ease monetary policy even further. If Lagarde hints that there is more easing ahead, EURGBP could slide even further. On the other hand, if she expresses optimism for the economy and lesser need for easing, EURGBP could trade higher.
On the 4-hour time frame, it can be seen that EURGBP has made lower highs after a series of higher highs. Consequently, a head and shoulders chart pattern has formed. When you enroll in our free forex trading course, you will learn that this is considered as a bearish reversal indicator. A strong bearish close below the neckline support at 0.8890, where it is currently trading at, may indicate more downside potential. Should this happen, we could soon see EURGBP fall to near-term support at 0.8825. If support at that level does not hold, the next floor could be at 0.8715 where it bottomed on May 11.
On the other hand, be wary of a strong bullish close above the highs of June 5 at 0.9003. This could invalidate the bearish chart pattern and indicate that there may still be buyers in the market. If this were to happen, we could soon see EURGBP rally to its May 29 highs at 0.9053. If resistance does not hold, the next ceiling could be at 0.9498 where the currency pair topped on March 19.