EUR/GBP Standstill at 0.8420 with ECB Interest Rate Decision on Tap

• On October 28, the ECB meeting will conclude several hours after the BOJ meeting.
• The rising number of coronavirus cases in the eastern region of Europe is due to the low rate of inoculation
• EUR/GBP is trading at 0.8429 level, having bounced off above the support level of 0.8400.

The EUR/GBP consolidates at 0.8420 ahead of the ECB interest rate decision to come out on Thursday. The day before, the EUR/GBP was closed at 0.8419 after reaching a high of 0.8437 and a low of 0.8401. The EUR/GBP fell for the second consecutive session on Tuesday, reaching its lowest level since February 2020.

A stronger GBP triggers a sell-off in the EUR/GBP

The decline in the currency pair to more than 20 months’ lowest level was triggered by the strength of the British Pound against the single currency Euro. The shared currency was facing selling pressure due to the common view that a dovish stance would prevail at next Thursday’s ECB monetary policy meeting.

It is broadly anticipated that the bank will maintain its bond-purchasing plan and will keep the benchmark interest rate near zero despite persistently high inflation. These expectations kept the single currency under pressure and ultimately weighed on the currency pair, EUR/GBP.

Covid-19 fear weights on the single currency euro

The rising number of coronavirus cases in the eastern region of Europe is due to the low rate of inoculation. Over the weekend, the coronavirus cases in eastern Europe surpassed 20 million as countries around the district have the lowest immunisation rates in Europe. The daily average rate of coronavirus cases reached its highest level since last November, at 83,700.

As per the World Health Organization (WHO), despite the widescale availability of vaccines this winter compared to last, Europe was the only part of the world reporting an increase in new COVID-19 cases globally. The district has recorded a surge in cases for the third consecutive week. The rising number of coronavirus cases in eastern Europe was also behind the weakness of the EUR currency that ultimately dragged the currency pair EUR/USD to the downside.

Meanwhile, the pound remained strong against the euro, supported by market expectations that the Bank of England (BOE) will accelerate the process of monetary normalization.Investors were pricing in an increased interest rate in the first half of next year as yearly inflation accelerated to levels nearly twice the bank’s target for price stability.

What’s next?

On the data front, there was no data to be released from the European side. However, from the UK side, at 15:00 GMT, the CBI Realized Sales from the UK in October surged to 30 against the projected 14 and supported the British Pound. That ultimately added further pressure on the currency pair EUR/GBP.

The ECB interest rate decision on tap

On October 28, the ECB meeting will conclude several hours after the BOJ meeting. As far as ECB meetings go, this isn’t especially significant. There will be no fresh forecasts issued. There will be no new efforts. Instead, ECB President Lagarde may explain the various variables influencing prices and why, on balance, the inflation overshoot appears to be transitory. We should highlight that the annualised rate of CPI in Q3 was roughly 2.4 percent, which was half of the annualised rate in Q2.

While the ECB meets, German and Spanish national October CPI numbers will be available, and the following data aggregate estimate will be provided. Given the base effect (a 0.2 percent increase in October 2020), the rise in energy costs, and the Euro’s depreciation, the ECB should presume that price pressures have not peaked. In September, the core rate, excluding energy and food, was 1.9 percent, the lowest level since 2002.

ECB – Pandemic Emergency Purchase Program

The Pandemic Emergency Purchase Program appears to be coming to an end after Q1 22. Following that, the real argument is about QE. The present Asset Purchase Program is modest (20 billion euros each month) and has numerous, albeit self-imposed, constraints. The ECB prefers a facility that is more flexible in terms of eligible assets and purchase timing. “The Governing Council expects them to run for as long as required to strengthen the accommodating impact of its policy rates, and to cease shortly before it begins raising the key ECB interest rates,” the statement said.

 

EUR/GBP price forecast ahead of the ECB interest rate decision 

On the technical front, the EUR/GBP is trading at 0.8429, having bounced off above the support level of 0.8400. On the 4-hour chart, the EUR/GBP violated the descending triangle pattern at the 0.8420 level. However, the breakout seems to have become a fakeout as the EUR/GBP enters the disrupted descending triangle.

On the bullish side, the EUR/GBP’s immediate resistance stays at the 0.8430 level. The 20-day exponential moving average extends this resistance. The closing of candles below this level can trigger a sell-off in the EUR/GBP pair. Whereas, a bullish breakout of the 0.8430 level could lead the pair towards the 0.8441 and 0.8464 levels. On the bearish side, a breakout of 0.8420 support exposes the pair towards the 0.8384 level.

EUR/GBP price analysis – Key technical levels

Support Resistance

0.8401 0.8437

0.8383 0.8455

0.8365 0.8473

Pivot Point: 0.8419

Lastly, the MACD indicator is closing histograms below the 0 level, demonstrating a selling trend in the EUR/GBP pair. Let’s consider staying bearish below the 0.8440 level today as the odds of a selling trend continuation remain solid. One more thing: the technical side can change upon the release of the ECB interest rate decision. So, react accordingly. All the best!