EUR/GBP: BoE Caution Versus ECB Determination

Against the backdrop of a weak UK economy and inflation above target, the Bank of England paused on 18 June, leaving the base rate unchanged at 3.75% for a fourth consecutive meeting, despite internal disagreements among committee members over the need for a rate hike. The contrast with the European Central Bank’s actions was notable: on 11 June, the ECB raised interest rates in response to a surge in eurozone inflation driven by higher energy prices amid the Middle East conflict. As a result, the monetary policy paths of London and Frankfurt temporarily diverged, with market attention now shifting to two upcoming meetings: the ECB on 23 July and the Bank of England on 30 July.

Technical Outlook

On the daily chart, EUR/GBP has been forming a bearish structure since November last year. After peaking around 0.8860, the pair moved into a broad trading range, and in February a descending triangle began to take shape. The price is currently testing the triangle's lower boundary.

Immediately below the triangle's lower boundary lies support at 0.8600, while slightly above it is the lower boundary of the current volume profile at 0.8622. This cluster of three technical levels could help keep the pair within the triangle, whereas a downside break may trigger increased market activity.

Above this area is the Point of Control (POC) zone at 0.8647–0.8650, where the bulk of trading volume for the first half of the year is concentrated. If the price breaks above this zone, it could move on to test the triangle's upper boundary. Should buying pressure overcome the descending resistance line, the upper boundary of the volume profile at 0.8703 and the resistance level at 0.8730 may act as the next barriers.

The RSI and MAs indicators currently stand at 41, 46 and 45, respectively. The RSI remains below the neutral 50 level, while the MAs, although approaching the lower boundary of the neutral zone, remain positively aligned.

Summary

The combination of the Bank of England keeping interest rates unchanged and the ECB's recent rate hike creates a backdrop in which the technical reaction around 0.8600 or the POC zone could become a key factor in determining the next directional move for EUR/GBP.

Trade over 50 forex markets 24 hours a day with FXOpen. Take advantage of low commissions, deep liquidity, and spreads from 0.0 pips (additional fees may apply). Open your FXOpen account now or learn more about trading forex with FXOpen.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.