• EUR/GBP met with fresh supply on Monday and dropped to over one-week lows.
• The descending channel constitutes the formation of a bullish flag chart pattern.
• A convincing break below the 0.8500 mark will negate the constructive setup.

The EUR/GBP cross struggled to capitalize on its modest uptick, instead met with some fresh supply near the 0.8535-40 region and dropped to seven-day lows on Monday. The cross was last seen trading around the 0.8515 area, down

Looking at the broader picture, the ongoing rejection slide from the very important 200-day SMA has been along a downward sloping channel. Given the recent recovery from the 0.8400 mark, or the lowest level since February 2020, the mentioned channel constitutes the formation of a bullish flag on short-term charts.

The constructive setup is reinforced by the fact that oscillators on the daily chart are holding in the positive territory. Moreover, RSI on the 1-hour chart is flashing oversold conditions and has moved on the verge of breaking below 30 on the 4-hour chart, supporting prospects for the emergence of some dip-buying.

That said, a convincing break below the trend-channel support, currently near the 0.8500 psychological mark, will negate the bullish bias and prompt aggressive technical selling. The EUR/GBP cross might then accelerate the corrective pullback towards the next relevant support near the 0.8465-60 area en-route the 0.8420 region.

On the flip side, the daily swing highs, around the 0.8540 region, now seems to act as an immediate resistance ahead of the 0.8560 level, or the top boundary of the mentioned channel. A sustained breakthrough, leading to a subsequent move beyond 200-DMA, around the 0.8575 zone, will validate the bullish flag breakout.

The momentum could then allow the EUR/GBP cross to surpass the 0.8600 mark aim to test September monthly swing highs, around the 0.8655-60 region. Some follow-through buying should pave the way for an extension of the positive move towards reclaiming the 0.8700 round-figure mark for the first time since May 2021.

EUR/GBP 4-hour chart

Technical levels to watch