EURGBP rallied strongly in yesterday’s trading as the pound weakened on threats from China against the UK. The currency pair bottomed from an intraday low of 0.8863 and traded higher to 0.8937. By the New York session close, EURGBP was up by 35 pips from its opening price at 0.8907.
Yesterday, it was reported that China warned the UK that it may face reprisals. This follows after talks that the latter may not allow Huawei to roll out its 5G projects in the country. There have been talks about the National Cyber Security Centre warning that the company could pose a threat to the UK’s national security.
With this, UK-based bank HSBC Chairman Mark Tucker already expressed his concerns. He said that the bank could become the target of China’s retaliation if Huawei’s projects do not pan out.
Consequently, the news was bearish for the British pound because it implies that strained trade relations could weigh on economic growth.
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EURGBP Outlook
On the 1-hour time frame, it can be seen that EURGBP recently made higher lows. Because this follows a series of lower lows, a potential inverse head and shoulders pattern could be in the making. If support at today’s Asian session lows hold, we could soon see EURGBP trade higher and test the 100 SMA and 200 SMA for resistance. If this happens, the chart pattern will have been completed.
When you enroll in our free forex trading course, you will learn that this is widely considered as a bullish reversal pattern. A break of the neckline resistance could suggest that there may be enough buyers in the market to push EURGBP to the highs of June 5 at 0.9006. If there is enough bullish momentum, the currency pair could even go all the way up to the highs of May 29 at 0.9053.
If this were to happen, the head and shoulders pattern I pointed out on the 4-hour time frame of EURGBP yesterday will have been invalidated.
On the other hand, a close below yesterday’s low at 0.8863 could suggest that sellers are still dominating market sentiment. Consequently, EURGBP may then fall to its May 11 lows at 0.8716.
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