The EUR/GBP broke above a flag pattern earlier last week and I mentioned that this was a bullish continuation signal with 0.92 as a target.
EUR/GBP 4H Chart 11/1
(click to enlarge)
Breakout and pullback:
- After the EUR/GBP broke above the flag pattern seen in the 4H chart above, price retreated from 0.9025.
- I mentioned that if price can break above 0.90 and hold above 0.89, the market would be more confident of the bullish outlook towards 0.92
- Price held above 0.9050 and made a strong bullish push. The latest 4H bullish candle was basically an engulfing candle.
- The fact that price respected the 100- and 50-period SMAs as support also suggests bulls are in control here.
There is a key event risk on Thursday: BoE inflation report along with the monetary policy statement.
- The market seems to be soft on the pound heading into this event, so I think the prospect of EUR/GBP pushing closer to 0.92 is strong.
- However, I would anticipate sellers closer to 0.9150, or even 0.91. Just don't expect any strong bullish breakout before Thursday.
- Let's see how the market reacts after the BoE statement is released. If EUR/GBP can hold above 0.8950, the bullish outlook should be fine.
- If price slides below 0.8950, we can anticipate a correction towards 0.88 and the 0.8720.