EUR/GBP Inverted Head & Shoulders Pattern Creates Surge Higher

The EUR/GBP is making a bullish reversal via an inverted head and shoulders pattern (blue boxes).

A bullish monthly candle could indicate the end of the bearish price swing and the start of an uptrend. Let’s review the critical patterns and targets.

Price Charts and Technical Analysis

The EUR/GBP is moving sideways after a strong surge up. This is probably a wave 3-4 pattern (red). Let’s review:

1. The bearish correction respected the shallow 38.2-50% Fibonacci retracement levels, which is typical for a wave 4.
2. The bullish bounce showed strength (wave 1) and the bearish correction seems to be building an ABC pattern (purple).
3. A break above the 21 ema zone would confirm the bullish breakout (green arrows).
4. A break below the bottom however invalidates it (red circle).

On the 4 hour chart, price action is showing very strong bullish momentum, as indicated by our blue ECS SWAT candlesticks:

1. The divergence pattern between the bottoms (purple lines) indicated that a reversal was likely.
2. The breakout above the resistance trend line (dotted orange), 21 ema zone, and 144 ema close indicate that a strong wave 3 (orange) is taking place.
3. Intra-day continuation upward is possible in the zone above the Wizz 5 towards the Wizz 6 level.
4. Eventually a pullback via a bull flag (orange arrows) is expected to retest the Wizz 4 or 5 levels for a bounce up (green arrows).
5. Even a pullback towards the 144 ema or previous lows should act as support could indicate a bounce up. Only a break below the bottom invalidates it (red circle).
6. The main targets on the 4 hour chart are the Wizz 6 level at 0.8720, then 0.8775-0.88, followed by 0.8950-0.90.

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

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