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On Tuesday, the EURGBP currency pair flirted with its lowest levels in four months, reflecting the prevailing belief that the Bank of England (BoE) may be slower to reduce rates compared to the European Central Bank (ECB).
Recent indicators of the UK economy suggest resilience, with an unexpected uptick in inflation fuelling speculation that the BoE might delay its easing plans. The upcoming ECB interest rate decision on Thursday holds the key to validating or challenging the consensus regarding the ECB’s timing for easing. While no rate changes are anticipated, the significance lies in the commentary’s tone. Given the recent decline in the EURGBP pair, a more assertive stance from the ECB tomorrow could act as a catalyst for a potential rebound.
Technical
On the 4H chart, a descending triangle has formed, with the psychological baseline support at 0.8549 currently underpinning the price. With a pivotal interest rate decision due tomorrow, we could see some consolidation around this level in the upcoming session.
The pattern usually signals the potential for a breakdown, and any movement below 0.8549 could trigger this bearish run toward 0.8536. A retracement to retest the breakdown level is possible at this level, but an additional breakdown could send the pair toward lower resistance at 0.8518 and 0.8504.
However, should the triangle support hold, the pair could rebound toward 0.8564, where the 25-SMA (green line) converges with the dynamic resistance of the triangle, creating a psychological level for the bulls to cross in order to emerge from the triangle. Clearance of this resistance could trigger a breakout toward 0.8581, the 50-SMA (blue line) and 0.8587. If the breakout is sustained, the supply zone at 0.8619 could become a likely destination in the upcoming sessions as the pair recovers from its multi-month lows.
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Summary
The EURGBP teased 4-month lows on Tuesday, as the divergence between the respective central banks’ outlook on monetary policy has given the British Pound some strength. However, all is on the line with the ECB interest rate decision tomorrow, with the triangle support at 0.8549, a crucial level to keep an eye on.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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