The EUR/GBP currency pair has been in the spotlight this week, influenced by a myriad of factors including central bank policy decisions, economic data releases, and market speculation.
Bank of England’s Potential Dovish Approach
Ahead of the Bank of England’s (BoE) announcement, experts from Danske Bank have offered some clarity on the EUR/GBP trajectory. Their analysis suggests that even if the BoE opts for a 25 bps hike, the EUR/GBP is poised to finish the day in an advanced position, attributing this to anticipated dovish sentiments in the bank’s statement. The BoE is expected to emphasize its data-dependent strategy while also underlining the potential risks stemming from elevated wage growth and service inflation. Looking further ahead, Danske Bank forecasts the EUR/GBP to climb modestly to 0.88 within the next year due to the UK’s economic performance lagging behind the Eurozone’s.
ECB’s Stance on Rate Hikes
Adding to the dynamic, Gabriel Makhlouf, a European Central Bank (ECB) policymaker, shared insights in a recent interview with an Irish newspaper. He didn’t rule out the possibility of another rate hike, though he also suggested that rates could remain unchanged for a prolonged period if inflation metrics remain stable.
Recent Economic Data Sways the Pair
Earlier this week, the EUR/GBP saw a surge, which market analysts attribute to the UK’s softer-than-expected inflation data. The pair’s momentum was further catalyzed when the UK’s August Consumer Price Index (CPI) figures failed to meet market projections, registering at a mere 0.3% against the anticipated 0.7%. This unexpected downturn has led market participants to re-evaluate their positions on the Pound Sterling, especially with the BoE’s last predicted rate hike of the cycle on the horizon.
Economic Outlook and Key Figures
The forthcoming BoE rate decision, scheduled for 11:00 GMT, has kept traders on edge, with broad expectations pointing to a benchmark interest rate increase from 5.25% to 5.5%. However, the slowing inflation rate could compel the BoE to reconsider its current rate hike cycle.
Subsequently, attention will shift to the release of UK Retail Sales and Purchasing Manager Index (PMI) data. A rebound to 0.5% is anticipated for UK Retail Sales, up from the previous -1.2% reading. Additionally, the UK’s PMI composite is projected to experience a minimal uptick, moving from 48.6 to 48.7. The Eurozone isn’t exempt from this data-driven tension, with its composite PMI figures estimated to descend slightly from 46.7 to 46.5.
Technical Trajectory for EUR/GBP
From a technical perspective, Wednesday’s ascent has solidified the EUR/GBP‘s position above the 0.8640 mark, currently oscillating around the 0.8650 level. A rising trendline has become apparent in the hourly candle charts, converging with the 34-hour Exponential Moving Average (EMA) at 0.8635. On the daily spectrum, the Euro is on the brink of breaching the descending trendline, tracing back to July’s highs, aiming for the 0.8700 zone. To add another layer, the 200-day Simple Moving Average (SMA) looms close by, stationed near 0.8710.
As these intertwining factors come to fruition, traders and analysts alike will be closely monitoring the pair’s movements, ready to adapt to the ever-evolving forex landscape.
TRADE IDEA DETAILS
CURRENCY PAIR: EUR/GBP
CURRENT TREND: Bullish
TRADE SIGNAL: Buy
👉ENTRY PRICE: 0.8655
✅TAKE PROFIT: 0.8700
❌STOP LOSS: 0.8630
ANALYSIS:
The sentiment from central banks, coupled with softer UK inflation data, suggests a bullish move for EUR/GBP. The technical analysis aligns with this perspective, indicating a potential move towards the 0.8700 handle, especially with the currency pair managing to stay above the 0.8650 level.
FINAL THOUGHTS:
This trading idea is predicated on both fundamental factors (central bank sentiments and economic data) and technical indicators. Traders should monitor the position closely, especially around the time of the BoE’s rate decision and subsequent economic releases, as these could serve as catalysts for significant price movement.