EUR/GBP Surge to 0.8565 – What Could Drive Further Uptrend?
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- ECB President Christine Lagarde fueled expectations of faster monetary policy tightening.
- German Factory Orders were up 2.8% from the previous month versus a forecasted 0.4% increase, bolstering the euro.
- A spike in demand can slice through the 0.8486 level to reach the 0.8550 or 0.8699 resistance levels.
The EUR/GBP is trading with a solid bullish bias at the 0.8470 level. On Friday, the EUR/GBP closed at 0.8458 after setting a high of 0.8472 and a low of 0.8404. The EUR/GBP continued its bullish trend for the second consecutive session on Friday. Thus, it reached its highest level since December 23rd. The single currency euro gathered strength over the US dollar after comments from ECB President Christine Lagarde fueled expectations of faster monetary policy tightening.
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ECB and BoE monetary policy stance
Lagarde acknowledged that inflation was higher than expected and that risks were tilted to the upside, but she maintained positive forecasts and predicted it would ease this year. She further said that the market conditions would be carefully assessed, and increasing interest rates would be data-dependent. On Friday, the euro’s strength due to positive Lagarde comments added to the currency pair EUR/GBP’s upward momentum.
On the other hand, the British Pound failed to capitalize on the more hawkish Bank of England policy decision, which was another factor providing an additional boost to the EUR/GBP currency pair. It is worth recalling that the Bank of England raised the benchmark interest rate by 25 bps, in line with market expectations.
The votes showed that 4 out of 9 policymakers favored a more aggressive rate hike by 50 bps. However, the move was already priced in the market, which left Sterling under pressure.
The economic event outlook
At 12:00 GMT, German Factory Orders were up 2.8% from the previous month versus a forecasted 0.4% increase, bolstering the euro. At 12:45 GMT, French industrial production dropped by 0.2% against the expected 0.5% and weighed on the euro. The French preliminary private payrolls for the quarter also surged to 0.5%, against the expected 0.4%, and supported the euro.
At 15:00 GMT, retail sales dropped by 3.0% against the projected-1.0 and weighed on the euro. Despite mixed data from Europe, the single currency remained higher due to positive developments surrounding the currency and pushing the EUR/GBP higher, whereas on the British front, at 14:30 GMT, the Construction PMI rose to 56.3 from the projected 54.3 and supported the British Pound, which kept the gains of EUR/GBP limited on Friday.
The Bank of England’s Deputy Governor, Ben Broadbent, said that the main reason for wage growth picking up in the UK was the tightness of the labor market. He also said that some of the wage rises could be because of the high inflation, but the leading cause was the recruitment difficulties. Broadbent’s comments put more downward pressure on the GBP and pushed the EUR/GBP higher across the board.
EUR/GBP price forecast –Daily Technical Levels
Support Resistance
0.8454 0.8474
0.8445 0.8485
0.8433 0.8494
Pivot Point: 0.8465
EUR/GBP price forecast – Downward trendline breakout at 0.8420
The EUR/GBP is trading at 0.8469, having violated the double top resistance at 0.8420 on the 4-hour chart. The pattern extended resistance at 0.8420 along with support at 0.8305. In the 2-hour timeframe, the EUR/GBP pair has violated the descending triangle pattern that is supporting an uptrend now. Alongside, the formation of three white soldiers’ patterns also adds a bullish bias for cross-currency pairs. A spike in demand can slice through the 0.8486 level and reach the 0.8550 or 0.8699 resistance levels.
Typically, candlestick patterns such as “Three White Soldiers” can drive sharp uptrends in the market. Therefore, the chances of buying remain strong above the 0.8420 level. The 50-day exponential moving average is holding at the 0.8410 level. It’s supporting the buying trend in the EUR/GBP pair. The RSI and Stoch RSI are supporting an uptrend in the EUR/GBP pair; therefore, EUR/GBP buying can be captured above the 0.8420 level to target the 0.8486 and 0.8550.
On the bearish side, EUR/GBP may find immediate support at 0.8375. A break below this level can drive a further downtrend until the 0.8305 or 0.8265 level. All the best, and stay tuned for more updates!
