The Chunnel finally moves out of consolidation - but will the breakout hold ahead of Wednesday's UK data?
It has been quite a chop feast in FX of late as investors keep a close eye on
developments in risk assets for direction, amid the coronavirus-related uncertainty. So, today’s breakout in the EUR/GBP cross is a welcome break – at least for traders in this pair anyway. Take a look at the chart first:
Source: TradingView and ThinkMarkets
The EUR/GBP has been consolidating after mean reverting back to the 200-day average between March and April. Here, it was also testing old resistance in the 0.8680-0.8730 area.
Well, this old resistance zone has now turned into support and price has just broken out of a short-term pennant consolidation pattern.
Therefore, if the breakout sustains itself today, then we should be expecting to see follow-up technical buying in the days ahead – especially, if
Wednesday’s GDP estimate and other key data releases from the UK disappoint expectations and with the lockdown having been extended.
However, if price goes back in the range, then this could be considered a false breakout. In this potential scenario, rates could drop sharply – possibly to 0.9540 support next – as the bulls abandon their positions.