EUR/GBP Price Analysis: Eyes bullish head and shoulders neckline hurdle near mid-0.8400s

• EUR/GBP rallied for the second straight day and shot to over a one-week high on Tuesday.
• 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 near-term bullish breakout.

The EUR/GBP cross gained strong traction for the second successive day on Tuesday and jumped to over a one-week high, around the 0.8440 region during the first half of the European session. This also marked the fourth day of a positive move in the previous five and assisted the cross to build on its recent bounce from sub-0.8300 levels.

Looking at the broader picture, the recent price action constitutes the formation of a bullish inverted head and shoulders pattern on the daily chart. The neckline resistance is pegged near mid-0.8400s and is closely followed by the very important 200-DMA, near the 0.8465-0.8470 region, which if cleared would confirm the bullish pattern.

With technical indicators on the daily chart holding in the bullish territory and still far from being in the overbought zone, the EUR/GBP cross could then accelerate the move and aim to reclaim the 0.8500 psychological mark. Some follow-through buying has the potential to lift spot prices towards the next relevant hurdle near the 0.8550 region en-route the 0.8570-0.8580 zone.

On the flip side, the 0.8400 round-figure mark now seems to protect the immediate downside. Any subsequent decline might now be seen as a buying opportunity near the 0.8360-0.8350 horizontal zone. This, in turn, should limit the downside near the 0.8320-0.8315 area, which should act as strong near-term base for the EUR/GBP cross.

A convincing break below, leading to a subsequent breakthrough the 0.8300 mark will negate the constructive set-up and shift the bias back in favour of bearish traders. The EUR/GBP cross would then turn vulnerable to accelerate the fall towards the 0.8255-0.8250 region before dropping to the multi-year low, around the 0.8200 round figure.

EUR/GBP daily chart

Technical levels to watch