On Friday, the EURGBP currency pair hovered near its four-month low, influenced by the recent interest rate decision by the ECB. With robust economic indicators supporting the strength of the British Pound against its counterparts, the interest rate decision from the ECB failed to ignite a bullish bounce.
Maintaining a hawkish stance, the ECB kept its rates steady at 4.5%, emphasizing significant strides in managing inflation. However, there was no indication of an imminent consideration for rate cuts, as the ECB aims to sustain higher rates for an extended period to steer inflation back to its target. The central bank’s consensus is that it’s premature to discuss rate cuts, even though the market is already pricing them in for April. This shifts attention to other major central banks, with the Federal Reserve’s interest rate decision looming next week.
Technical
On the 4H chart, a breakdown has occurred at the descending triangle, with the pair failing to break through the 25-SMA (green line) resistance. While a retracement is on the cards, volumes have been increasing, suggesting that the current downtrend could be sustained.
Resistance at 0.8537 could be the focal point in the upcoming sessions. If the resistance holds, the breakdown could be prolonged toward support at 0.8518. If the bearish momentum continues at this level, an additional leg lower could drive the pair toward the neckline support at 0.8504, where buyers could likely be found.
Conversely, if a retracement breaches the 0.8537 resistance, a retest could occur at the triangle’s prior support of 0.8550. At this level, the downtrend could either be confirmed by a leg lower, or the breakdown could be denied by a breach toward the 25-SMA at 0.8553. This could be a crucial level to watch, as a breakthrough could signal a bullish shift in momentum toward the 50-SMA (blue line) near 0.8569.
Summary
While the EURGBP currency pair trades near 4-month lows, a retracement of the recent breakdown is on the cards. However, with volumes ticking up, the downtrend could be sustained. The resistance at 0.8537 could be crucial to watch to determine the trend’s trajectory as we advance.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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