EURGBP could be in for a reversal from its climb as price formed a head and shoulders pattern on its 4-hour chart and is currently testing the neckline. A break below this could set off a drop that’s around the same height as the chart formation.

The 100 SMA is still above the 200 SMA, though, so the path of least resistance is to the downside. In other words, support is more likely to break than to hold. If that happens, EURGBP could fall by at least 150 pips.

RSI still has a bit of room to head south before reflecting oversold conditions, so selling pressure is in play. However, the oscillator is already closing in on this area to signal that exhaustion among sellers is about to set in soon. Stochastic is dipping into the oversold region as well, so sellers could take a break and allow buyers to take over.

The euro enjoyed strong support from the ECB stimulus announcement, as well as the EU Recovery Plan and additional aid package from the German government. However, the lower-yielding currency gave up some ground as risk appetite has been in play over the latest trading sessions.

Meanwhile, sterling could be under weak footing if Brexit negotiations keep failing to deliver. As it is, PM Johnson could be forced to seek another extension past the December deadline or accept a “no deal” outcome. Talks are hitting a wall at the issue on fisheries, along with the impact of the pandemic.

There are no major reports from both the euro zone and the U.K. economy this week, which could be enough to keep this pair safely inside its range. The U.K. April GDP might be worth watching as a large contraction is eyed, and weaker than expected results could mean significant losses for sterling.