EUR/GBP Price Forecast: Positive view prevails above 0.8670, traders await ECB rate decision
- EUR/GBP weakens to around 0.8670 in Wednesday’s early European session, losing 0.20% on the day.
- The positive view of the cross prevails above the key 100-day EMA with the bullish RSI indicator.
- The immediate resistance level emerges at 0.8722; the first support level to watch is 0.8640.
The EUR/GBP cross attracts some sellers to near 0.8670 during the early European session on Wednesday. Renewed trade tension between the European Union (EU) and the United States (US) could exert some selling pressure on the Euro (EUR). The bloc appears to be considering whether to deploy its “Anti-Coercion Instrument” to try to deter trade disputes as the threat of a 30% tariff on EU imports looms large.
Traders brace for the European Central Bank (ECB) interest rate decision on Thursday for fresh impetus. The ECB is anticipated to hold rates steady at its July meeting.
Technically, the constructive outlook of EUR/GBP remains in place as the cross is well-supported above the key 100-day Exponential Moving Average (EMA) on the daily chart. The upward momentum is reinforced by the Relative Strength Index (RSI), which stands above the midline near 61.40, displaying bullish momentum in the near term.
On the bright side, the first upside barrier emerges at 0.8722, the upper boundary of the Bollinger Band. Sustained trading above this level could pick up more momentum and aim for 0.8765, the high of November 20, 2023. Further north, the next resistance level is seen at 0.8864, the high of April 17, 2023.
In the bearish case, the low of July 18 at 0.8640 acts as an initial support level for EUR/GBP. A breach of this level could drag the cross toward the 0.8610-0.8600 zone, representing the low of July 11 and the psychological level. The additional downside filter to watch is 0.8542, the lower limit of the Bollinger Band.
EUR/GBP daily chart
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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