EUR/GBP Completes a Kilroy Pattern

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EUR/GBP Completes a Kilroy Pattern

Kilroy is Here: The EUR/GBP was bearish last week, falling from about 0.80 to 0.7813. However, as we can see in the 1H chart, the pair has formed a kilroy, or inverted head and shoulders pattern in the past few sessions, signaling a possible bullish reversal in the short-term.

EUR/GBP 1H Chart 12/23
eurugbp 1h chart 12/23
(click to enlarge)

Shoulder Support: The 1H chart shows that the 0.7835-0.7840 area has become a key support in the near-term. The integrity of the price bottom depends on price holding above this area, where the 50-hour SMA resides at the moment. With a price bottom in place, EUR/GBP would have a short-term bullish outlook, back towards the 0.80 area. Also note that the 1H RSI broke above 60, showing loss of the bearish momentum since last week.

Key Resistance: Failure to break above 0.79 however could be a sign of bears taking over in the medium-term. Let’s take a look at the daily chart for the medium-term assessment.

EUR/GBP Daily Chart 12/23
eurgbp daily chart 12/23
(click to enlarge)

Consolidation in the Medium-term: The EUR/GBP has been consolidating since September. There is some slight coiling gong on, but the market essentially ranged between 0.8065 and 0.7767. The prevailing trend before September was bearish, and recent price action is indicative of a market ready for bearish continuation.

0.79 Again: With the current rally, we can check this bearish continuation theory. In the 1H chart, the 200-hour SMA resides around 0.79. Therefore, a hold below 0.79 would be a sign that bulls are unable to take over even in the short-term. In the daily chart, a hold below 0.79 would show maintenance of bearish bias as price would be under the 200-, 100-, and 50-day SMAs.

With price under 0.79, the medium-term pressure remains on the 0.7767-0.78 support area of the multi-month consolidation range. After such choppy consolidation action in the past few months, a break below 0.7765 should be a strong bearish continuation signal.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.