The monetary policy differential between the central banks of England and Europe has been supportive recently for the pair. The Bank of England may have been one of the first major central bank to hike interest rates all the way back to December 2021 and delivered its fifth straigh increase last month, but has been limited to timid adjustments.
More to it, its tightening effort may be running out of runway as fears of stagflation loom, with officials projecting GDP contraction in the fourth quarter, which makes more rate rises harder.
The European Central bank, on the other hand has been way behind its major peers, but turned hawkish recently. It expects rate lift-off in July by 25 basis points and sees more hikes ahead, of potentially larger increments.
On the technical front, EUR/GBP dropped over the last couple of days and tested, but defended, the ascending trendline from April's lows and the EMA200 (balck line). The bounce off of these key levels maintains the upward bias and puts bulls back in play for the 0.8698-0.8730 area, but they may need a catalyst for new highs that would bring 0.8852 in the spotlight.
Looking at the daily chart, a Golden Cross was formed early last month (EMA50 crossing above EMA200), which can be precursor of sustained strength. On the other hand, EUR/GBP had failed to move beyond the 38.2% Fibonacci of the 2020 High/2022 Low drop. As long as it is contained below this area it susceptible to further pressure.
Despite today's bounce, the common currency is still vulnerable to sub-EMA200 moves that would expose it to the 200Days EMA (0.8480), but weakness below both those levels seems a bit of stretch at this point.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.