EUR/GBP faces significant pressure as the market awaits the UK Consumer Price Index (CPI) and Bank of England (BoE) policy decision. The Euro has started to fall amid ongoing banking issues, as reports suggest that two more commercial banks are under scrutiny for possible contagion.

All eyes will be on the UK's CPI data before heading into the BoE rate decision later this week.

Further out, EUR/GBP is, in our view, stuck between opposing forces. On the one hand, we expect relative rates to act as a clear tailwind, while global growth slowdown and the relative appeal of UK assets act as a headwind. At present, we do not see the relative growth outlook or global investment environment to create a significant divergence between EUR and GBP.

The Pound sterling is getting a boost as money markets price in a 50% chance of no interest rate hike by the BoE on Thursday, and the same chance of a 25 basis-point increase. With the odds of a pause rising, this is perceived as positive amid banking turmoil.

EUR/GBP is currently sitting around a multi-month low at the 0.8725 level, which is also the surface of an ascending trendline beginning at the 0.8342 mark on a daily timeframe. A convincing break below would likely send the pair towards uncharted territory until the support zone at the 0.8600 level.

The 21- Daily Moving Average (DMA) and 50-DMA crossover is contributing to the downside bias for EUR/GBP. Any upside gains are likely to be capped around the 0.8800 mark, followed by both Moving Averages. Although the Relative Strength Index (RSI) is signaling an oversold condition for the pair, the price is likely due for a pullback.

This can be a completion of expanded corrective structure

Mar 21 2023