EURGBP False Breakout: Buyers Reemerge as UK Inflation Data Surprises
24 May 2023
Today's calendar offers an exciting opportunity for traders seeking increased volatility and potential triggers related to the British Pound. Prior to the European session, the UK inflation figure was released, showing a drop that was not as significant as expected. The Consumer Price Index (CPI) came in at 8.7% instead of the anticipated 8.2%, although it remained lower than the previously reported 10.1%.
The initial market reaction was fairly straightforward, resulting in a strengthening of the British Pound. This had a notable impact on our focal point for today, the EURGBP pair, as it facilitated a breakthrough of a key horizontal support level. Before delving into the details, let's establish the broader context.
EURGBP experienced a highly technical month in May. It commenced with a bearish breakout from a symmetrical triangle pattern, which provided a sell signal. This was subsequently followed by a breach of the horizontal support at 0.873, confirming a bearish sentiment. The price then entered a sideways trend, resembling a rectangle pattern (highlighted in yellow). The slightly higher inflation reading spurred demand for the GBP, resulting in a downside breakout from this rectangle formation.
However, this breakout (marked in orange) was swiftly invalidated, and the price rapidly returned inside the rectangle. At this point in the middle of the European session, it appears that the entire bearish attack was merely a false breakout. Consequently, buyers have regained control. A buy signal will be triggered if the price surpasses the green resistance level. It remains to be seen whether buyers will muster enough strength to accomplish this feat.