The EURGBP looks braced for downside after failing at the top of the pair’s short-term trading range, and the euro currency looks to be somewhat overbought against the US dollar.
As we know cross flows can influence the euro basket, so if we see the EURUSD pair starting to make a move lower then we could reasonably expect to see the EURGBP pair suffering.
Arguably, we can also say that sterling strength could be coming. Recently the GBPUSD pair has been a buy below the 1.2000 level, so if we see sterling strength we could see EURGBP weakness.
We also need to consider that the UK economic situation may be better than the eurozone one at present. If we see better UK data it could prompt a drop in EURGBP.
In terms of the technical, bearish patterns abound, and continue to allude to the fact that a fall towards the 0.8700 level could happen at any time for the typically slow moving EURGBP pair.
Sentiment metrics are highly suggesting that a breakout is imminent as the majority of traders are stacked short against the EURGBP pair.
The ActivTrader platform shows that bearish sentiment is rising, with some 66 percent of traders now expecting more upside in the EURGBP pair despite the recent rise from the 0.8700 level.
Overall, this is still bullish for the EURGBP pair because traders are typically on the wrong side of the trade. Most of the time fading retail sentiment works well for trading purposes.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that the EURGBP pair is technically bullish over the short-term with the price trading slightly above its key 200-period moving average, around the 0.87700 area.
Looking at bearish patterns, a large head and shoulders pattern has formed. This could hint at a restest of that 0.8700 very important technical area.
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EURGBP Medium-term Technical Analysis
The daily time frame shows that the EURGBP pair has recently failed at the upper end of its daily range and has now formed a large head and shoulders price pattern.
According to the overall size of the bearish price patterns full target the EURGBP could be in the process of dropping towards the 0.8650 level judged by the size of the head and shoulders pattern.
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