EUR/GBP Price Forecast – Why 0.8375 Could Drive a Downtrend?

• Russia’s insistence on Ukraine’s surrender has heightened tensions because Kiev may refuse to cede sovereignty to Moscow.
• Ukrainian Foreign Minister Dmytro Kuleba stated that “zero” progress had been achieved in negotiations with Russian Foreign Minister Sergey Lavrov.
• EUR/GBP is trading at 0.8360 level, heading lower towards an immediate support level of 0.8335 level.

The EUR/GBP price forecast remains bearish as the currency pair failed to stop its previous-day downward rally. The GBP cross pair dropped back to the 0.8373 area, down about 0.7% from Friday’s peaks. The EUR/GBP pair has stabilized just below the 0.8400 mark on Friday. Traders consider how the Ukraine war and its global economic consequences will affect the UK/EU economic picture. Moreover, the prognosis for BoE/ECB policy also remains in highlight.

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Hawkish European Central Bank Stance Underpins EUR

Following the ECB’s more hawkish-than-expected shift in QE policy, EUR/GBP surged to one-month highs in the 0.8430s. However, the pair gains were short-lived. The pair has since declined to around 0.8375, down roughly 0.7 percent from Thursday’s highs, with about 0.2 percent of that dip occurring on Friday. That’s perhaps due to better-than-expected UK January GDP numbers.

Russia-Ukraine in the Highlights

Aside from that, the Russia-Ukraine peace negotiations ended without a satisfactory result. Russia’s insistence on Ukraine’s surrender has heightened tensions since the latter may refuse to hand over its sovereignty to Moscow. The intensification of the Russia-Ukraine conflict may put additional strain on Europe’s economy, contributing to EUR/GBP losses.

The positive UK macro data was considered another important factor that weighed on the EUR/GBP pair. At this time, the EUR/GBP currency pair is trading at 0.8371. It’s consolidating in the range between 0.8360 and 0.8419.

Russian President Vladimir Putin noted a positive shift in rhetoric from Ukrainian officials in recent days. Despite a somewhat positive statement from Russian President Vladimir Putin market trading sentiment remained depressed on the day. Traders have started learning not to take statements from President Putin, or any other Russian official, at face value in recent weeks.

“Zero” Progress achieved in negotiations

On Thursday, Ukrainian Foreign Minister Dmytro Kuleba stated that “zero” progress had been achieved in negotiations with Russian Foreign Minister Sergey Lavrov. That’s highlighting how difficult it is to assess the likelihood of a diplomatic end to the war.

For the time being, investors aren’t betting on it, which is likely one of the reasons why there isn’t enough demand to propel the S&P 500 back above 4300. Indeed, as the West tightens sanctions on Russia concerns about the economic consequences of the conflict are likely to persist. The G7 nations lost Russia’s favored nation trading status on Friday. They are fighting to limit the country’s access to the IMF and World Bank. Hence, the growing conflict between Russia and Ukraine could put more strain on the European economy, making the EUR/GBP lose more value.

Economic Event’s Outlook

Positive UK macro data was seen as another major factor weighing on the EUR/GBP pair. The monthly GDP data for the UK showed that the economy rebounded quickly from a 0.2% drop in December. The economy grew by 0.8% in January, which was more than the market expected.

In addition, industrial output increased by 0.7 percent month over month in January, owing to a 0.8 percent increase in manufacturing output. Furthermore, output in the services sector climbed by 0.8 percent in the reported month, compared to a 0.5 percent drop in December. People think the Bank of England will raise interest rates when it meets next week, so the data helped the British pound.

What’s Next?

In the coming week, geopolitics will continue to be the primary equity market driver. As speculation of a possible Putin/Zelenskyy meeting grows, traders are assessing the prospects for high-level Russo-Ukraine discussions delivering some much-needed de-escalation. Fears are growing that Russia will use chemical or biological weapons in the fight, which could lead to a violent response from the rest of the world.

EUR/GBP price forecast – Daily Technical Levels

S3 0.84047
S2 0.84187
S1 0.83615
Pivot Point 0.83617
R1 0.82609
R2 0.82771
R3 0.83228

EUR/GBP price forecast – Brace for a retracement

The EUR/GBP price forecast remains bearish, as it’s trading at the 0.8360 level, heading lower towards an immediate support level of 0.8335. The cross pair has already completed a 23.6% Fibonacci correction, and now it’s heading south for the next support level. On the lower side, the EUR/GBP’s immediate support may prevail at the 0.8335 level, which is being extended by a 38.2% Fibonacci retracement level.

A breakout of the 0.8335 level exposes the EUR/GBP price towards the next support level of the 0.8305 level. If the downtrend continues, the EUR/GBP price could fall as low as 0.8280.

Since the market is already in the overbought zone, the odds of a bearish reversal remain strong, especially below the resistance level of 0.8375. On the 4-hour chart, the EUR/GBP pair is likely to gain support at the 0.8330 level. A break above 0.8375 (23.6% Fibo level) means the EUR/GBP price can soar towards a double top pattern at 0.8425.

The 50-day exponential moving average is likely to provide support at the 0.8335 level. Thus, we should look for a sell trade under the 0.8375 level and vice versa. All the best, and stay tuned for more updates!