EUR/GBP has edged lower, approaching the 0.8350 level as investors anticipate the European Central Bank’s (ECB) interest rate decision. Meanwhile, inflationary pressures in the UK have eased, adding speculation that the Bank of England (BoE) could follow suit with rate cuts. In this analysis, we will break down the key technical levels across Daily, H4, and H1 charts, and review the economic influences shaping market sentiment.
Key Takeaways:
- EUR/GBP dips near 0.8350 as markets brace for ECB’s anticipated 25 bps rate cut.
- UK inflation dropped to 1.7% in September, heightening expectations for BoE rate cuts.
- Key resistance levels remain intact, while support holds in anticipation of the ECB announcement.
Technical Analysis
Daily Chart Overview
On the daily chart, EUR/GBP remains in a broader downtrend, having formed lower highs and lower lows. The pair’s current position near the 0.8350 level reflects key support, with a significant zone of demand below at 0.8320. The RSI indicator shows a moderate level, indicating room for further downside if bearish momentum resumes. Resistance on the daily timeframe lies near 0.8430, marked by prior swing highs and fib retracement levels.
- Key Levels:
- Resistance: 0.8430
- Support: 0.8320
H4 Chart Analysis
In the H4 timeframe, EUR/GBP exhibits a continued bearish structure with a Break of Structure (BOS) around the 0.8370 area, confirming bearish intent. Despite a brief pullback to equilibrium at 0.8365, the pair remains under pressure. The next key level to watch is the 0.8330 demand zone, where bulls could attempt to regain control.
- Key Levels:
- Immediate Resistance: 0.8370
- Support: 0.8330 (key demand zone)
H1 Chart Analysis
The H1 chart confirms the immediate bearish bias, as the price approaches the 0.8350 level. A BOS was seen around 0.8365, with the potential for a retest if selling pressure subsides. The equilibrium level near 0.8360 may serve as short-term resistance before a continuation lower. However, any upside momentum would likely face stiff resistance near the 0.8385 supply zone.
- Key Levels:
- Resistance: 0.8360, 0.8385
- Support: 0.8350, 0.8325
Economic Data
The ECB is widely expected to announce a 25 basis point cut in its upcoming decision, with the deposit rate potentially reduced to 3.25%. Slower inflation and weak economic growth across the Eurozone have shifted the ECB’s focus toward more aggressive easing. However, any dovish comments by ECB President Christine Lagarde could weigh heavily on the Euro, adding further downside pressure to EUR/GBP.
In the UK, inflation eased significantly to 1.7% in September, down from 2.2% in August, the lowest level since April 2021. This data increases the likelihood of a rate cut by the BoE in November, though the UK Retail Sales report, expected on Friday, could sway sentiment if it surprises to the upside.
Trading Recommendations
- For Day Traders: Consider entering short positions if EUR/GBP breaches the 0.8350 support level with volume confirmation. Target the 0.8320 zone, while maintaining tight stops above 0.8370.
- For Swing Traders: The broader downtrend remains intact, so traders should look for selling opportunities near resistance levels at 0.8380-0.8400, with downside targets at 0.8320.
Conclusion
EUR/GBP remains under bearish pressure, with the upcoming ECB decision playing a pivotal role in determining short-term direction. Support at 0.8350 is critical, and any breach of this level could lead to further downside towards 0.8320. Meanwhile, traders should stay alert for shifts in sentiment driven by economic data, particularly in light of the ECB and BoE’s upcoming moves.
