EUR/GBP: Inverse Head & Shoulders Breakout Towards TargetChart Overview
Asset: Euro / British Pound (EUR/GBP)
Timeframe: 1-hour (1H)
Date and Time: Published on April 2, 2025, at 19:21 UTC
Publisher: GoldMasterTraders on TradingView
Current Price (at the time of the chart):
Open: 0.83668
High: 0.83670
Low: 0.83260
Close: 0.83635
Change: -0.00035 (-0.04%)
Price on the Right Axis: The price scale ranges from approximately 0.83100 to 0.84447, with the current price around 0.83642 (ask) and 0.83635 (bid).
Chart Elements and Technical Analysis
1. Candlestick Price Action
The chart displays a 1-hour candlestick representation of EUR/GBP, showing price movements from mid-March to early April 2025.
Trend Context:
Prior to the formation of the pattern, the price experienced a downtrend, declining from around 0.84200 (March 12) to a low of 0.83260 (March 25). This indicates a bearish trend leading into the pattern formation.
Following this decline, the price began to consolidate, forming the Inverse Head and Shoulders pattern, which suggests a potential reversal from bearish to bullish.
Recent Price Action:
On April 2, the price appears to have broken out above the neckline of the Inverse Head and Shoulders pattern, closing above the resistance level with a bullish candle. The current price of 0.83642 is above the breakout level, supporting the bullish thesis.
2. Chart Pattern: Inverse Head and Shoulders
Pattern Identification:
The chart highlights an Inverse Head and Shoulders pattern, a bullish reversal pattern that typically forms after a downtrend. It consists of three troughs:
Left Shoulder: A low around 0.83400 (March 20), followed by a bounce.
Head: A deeper low at 0.83260 (March 25), marking the lowest point of the pattern.
Right Shoulder: A higher low around 0.83400 (March 30), indicating diminishing selling pressure.
The neckline is drawn by connecting the highs between the shoulders (around 0.83600–0.83700), sloping slightly downward in this case.
Pattern Dynamics:
The Inverse Head and Shoulders pattern signals a shift from bearish to bullish sentiment. The left shoulder and head represent selling pressure, while the higher right shoulder indicates buyers stepping in at a higher level, showing increased demand.
The breakout occurs when the price closes above the neckline, confirming the reversal. In this chart, the breakout is confirmed around April 2, with the price closing above the neckline at approximately 0.83600–0.83700.
Breakout Confirmation:
The price broke above the neckline on April 2, with a strong bullish candle closing at 0.83635. The current price of 0.83642 is holding above the breakout level, which is a positive sign for bulls.
The breakout level aligns with the resistance zone, making the move significant as it also clears this key barrier.
3. Key Support and Resistance Levels
Support Level:
A horizontal support zone is marked around 0.83425 (approximately 0.8340–0.8345).
This level corresponds to the lows of the left and right shoulders, where buyers stepped in to defend the price. It also aligns with the lower boundary of the pattern, reinforcing its importance.
Resistance Level:
A resistance zone is marked around 0.83700 (approximately 0.8365–0.8375).
This level corresponds to the neckline of the Inverse Head and Shoulders pattern and a previous high from March 19. It acted as a barrier during the pattern formation but has now been broken, turning it into potential support on a retest.
Target Level:
The target for the breakout is projected at 0.84447.
This target is calculated using the standard method for Head and Shoulders patterns: measuring the height of the pattern (from the head at 0.83260 to the neckline at 0.83700, which is 0.00440) and projecting that distance upward from the breakout point (0.83700 + 0.00440 = 0.84140). The target of 0.84447 is slightly higher, possibly adjusted for the next significant resistance.
The chart indicates a potential move of 0.00627 (0.75%), which aligns with the distance from the breakout level (0.83700) to the target (0.84447).
4. Stop Loss and Risk Management
Stop Loss:
The stop loss is suggested below the support level at 0.83425.
Placing the stop loss below this level ensures that if the breakout fails and the price falls back below the neckline and the right shoulder, the trade is exited with a controlled loss.
The distance from the breakout level (0.83700) to the stop loss (0.83425) is 0.00275, representing the risk on the trade.
Risk-Reward Ratio:
The chart indicates a potential move of 0.00627 (0.75%) to the target.
The risk is 0.00275 (from 0.83700 to 0.83425), and the reward is 0.00627 (from 0.83700 to 0.84447), giving a risk-reward ratio of approximately 2.28:1 (0.00627 / 0.00275). This is a favorable ratio for a trading setup.
5. Additional Annotations
Pattern Components:
The chart labels the Left Shoulder, Head, and Right Shoulder, clearly identifying the structure of the Inverse Head and Shoulders pattern.
A blue arrow labeled “Inverse Head & Shoulder pattern” points to the formation, making it easy to recognize.
Arrows and Labels:
A green arrow labeled “Support Level” points to the 0.83425 zone, indicating where buyers have defended the price.
A red arrow labeled “Resistance Level” points to the 0.83700 zone, highlighting the neckline and the breakout area.
A blue arrow labeled “Target” points to 0.84447, showing the projected price objective.
A blue arrow labeled “Stop Loss” points to 0.83425, indicating the risk management level.
Price Labels on the Right Axis:
The right axis shows key price levels, with the current ask price at 0.83642 (red) and bid price at 0.83635 (black), reflecting the live market spread.
Trading Setup Breakdown
Based on the chart, here’s the detailed trading setup:
Entry:
Position: Long (buy) EUR/GBP.
Entry Point: The setup suggests entering after the price breaks out above the neckline of the Inverse Head and Shoulders pattern, which occurred around April 2, 2025, at approximately 0.83700.
Confirmation: The breakout is confirmed by a strong bullish candle closing above the neckline, with the current price at 0.83642, slightly below the high of 0.83670 but still above the breakout level. Traders might wait for a retest of the neckline (now acting as support) for a safer entry, though this isn’t explicitly suggested in the chart.
Stop Loss:
Level: Place the stop loss below the support level at 0.83425.
Rationale: This placement protects against a false breakout. If the price falls back below the neckline and breaches the right shoulder, the bullish thesis is invalidated, and the trade should be exited.
Risk: The distance from the entry (0.83700) to the stop loss (0.83425) is 0.00275, or approximately 0.33% of the entry price.
Take Profit/Target:
Level: The target is set at 0.84447.
Rationale: This target is derived from the height of the pattern projected upward from the breakout point. It also aligns with a logical extension toward the next significant resistance.
Reward: The distance from the entry (0.83700) to the target (0.84447) is 0.00627, or approximately 0.75% of the entry price.
Risk-Reward Ratio:
The risk-reward ratio is approximately 2.28:1, which is attractive for a trading setup. For every unit of risk (0.00275), the potential reward is over 2 units (0.00627).
Trade Management:
Trailing Stop: Once the price approaches the target at 0.84447, traders might consider trailing the stop loss to lock in profits, especially if the price shows signs of stalling.
Partial Profit Taking: Some traders might take partial profits at a minor resistance level (e.g., 0.84000) and let the remaining position run toward the target.
Broader Market Context
Trend Analysis:
The broader trend before the pattern was bearish, as evidenced by the decline from 0.84200 to 0.83260. The Inverse Head and Shoulders pattern suggests a potential reversal to the upside, with the breakout confirming this shift.
The price action after the breakout will be critical. A strong move toward 0.84000 with high volume would confirm the bullish momentum.
Volume and Momentum:
The chart doesn’t display volume or momentum indicators (e.g., RSI, MACD). However, a typical confirmation of an Inverse Head and Shoulders breakout includes:
Volume: An increase in volume on the breakout candle, indicating strong buying interest.
Momentum: A bullish signal from indicators like RSI (e.g., moving above 50) or MACD (e.g., a bullish crossover).
Traders should check these indicators to validate the breakout’s strength.
Market Factors:
EUR/GBP is influenced by factors like Eurozone and UK economic data, interest rate differentials, and Brexit-related developments. On April 2, 2025, traders should consider:
Economic Data: Key releases like UK GDP, Eurozone inflation, or central bank statements around this time could impact the pair.
Geopolitical Events: Any developments related to UK-EU relations or global risk sentiment could drive volatility in EUR/GBP.
Potential Risks and Considerations
False Breakout:
If the price fails to hold above the neckline (0.83700) and falls back below the right shoulder, the setup is invalidated. The stop loss at 0.83425 mitigates this risk.
Resistance at 0.84000:
The price may encounter resistance around 0.84000, a psychological level and a previous high. Traders should watch for bearish price action (e.g., a shooting star or bearish engulfing candle) near this level.
Market Volatility:
EUR/GBP can be volatile on a 1-hour timeframe, especially around economic data releases. Unexpected news could lead to sharp price swings, potentially triggering the stop loss prematurely.
Timeframe Limitations:
This is a short-term setup on a 1-hour chart, so the target might be reached within hours to a couple of days. However, intraday noise could lead to choppy price action, requiring active trade management.
Conclusion
The TradingView chart by GoldMasterTraders presents a well-structured bullish trading setup for EUR/GBP based on an Inverse Head and Shoulders pattern. The price has broken out above the neckline on April 2, 2025, signaling a potential move toward the target of 0.84447. Key levels include support at 0.83425 (where the stop loss is placed) and the neckline resistance at 0.83700, which the price must hold above to maintain the bullish thesis. The setup offers a favorable risk-reward ratio of 2.28:1, making it an attractive trade for short-term traders.
However, traders should confirm the breakout with additional indicators (e.g., volume, RSI) and monitor broader market conditions, as this chart is a snapshot from April 2, 2025, and market dynamics may have evolved since then. If you’d like to search for more recent data on EUR/GBP or check the outcome of this setup, I can assist with that!
