EUR/GBP Price Forecast: Euro returns above 0.8700 on a brighter mood
- EUR/GBP trims losses from Wednesday's reversal and returns above 0.8700.
- The de-escañation of the US-EU rift is providing some support to the Euro.
- The pair's constructive trend from mid-January lows remains in play.
The Euro reversal against the British Pound seen on Wednesday, found support at a previous resistance area near 0.8790, and the pair is picking up on Thursday, favoured by an improved market sentiment, returning to levels past 0.8700 with bulls aiming for the resistance area at 0.8745.
US President Trump’s softer tone against Europe and his refusal to use military action against a NATO member to take control of Greenland have provided some relief to markets. In the absence of key fundamental releases from the UR or the Eurozone, the improved risk appetite is supporting the Euro against the Cable.
Technical Analysis
EUR/GBP found buyers in the 0.8690 area and has returned above 0.8700. Technical indicators are mixed. The Moving Average Convergence Divergence (MACD) remains in negative territory, suggesting a frail bullish momentum, although the Relative Strength Index (RSI), at 57, highlights a moderately positive bias.
Bulls should confirm above the previous intraday support, at 0.8710, to attempt a retest of the 0.8745 level, which capped bulls on December 31 and January 21. On the downside, immediate support is at Wednesday's low of 0.8695 ahead of the ascending trendline support from mid-January lows, now around 0.8685.
(The technical analysis of this story was written with the help of an AI tool.)
Euro FAQs
The Euro is the currency for the 20 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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