EUR/GBP breaks above 0.8500 as Euro gains momentum ahead of ECB

• ECB meeting: Speculation of a 50 basis point rate hike boosts the euro.
• Europe is facing an energy crisis and political uncertainty in the UK and Italy.
• EUR/GBP finds resistance at the 20 and 55-day SMA.

The EUR is one of the best performers on Tuesday ahead of the European Central Bank meeting. The crossing EUR/GBP rose to 0.8540, the highest level in 12 days.

The ECB meets on Thursday

Reports on Tuesday suggest that ECB officials will discuss raising interest rates by 50 basis points at this week’s meeting and that they are still negotiating the “anti-fragmentation” tool. The odds of a 50 basis point hike increased, which boosted the euro. Still, the market consensus is 25bps.

The 10-year yield is up 3% to 1.24%, while the Italian benchmark remains flat at 3.38%. Italy will have a crucial day on Wednesday. Prime Minister Mario Draghi will speak in Parliament after his resignation. The result could be that Draghi remains in power or that President Sergio Mattarella is forced to call early elections.

The euro also benefited after the European Union eased sanctions on Russian banks. More recently, Reuters reported that Russia is expected to resume gas flows from Nord Stream 1 on Thursday, as planned.

In the UK, economic data showed the jobless rate stood at 3.8% in the three months ending in May. Median weekly earnings rose 6.2% from a year ago, below the 6.9% market consensus. Inflation data will be published on Wednesday. The June CPI will be a key data for the Bank of England. Analysts at TD Securities said the jobs numbers “change nothing for our view of the Bank of England, and we continue to expect a strong June CPI print to push the Bank to raise bank interest rates by 50 basis points in August.” “.

There are only three contenders left in the race for Tory leadership. Kemi Badenoch was eliminated in the fourth round with 59 votes. Rishi Sunak received 118 votes (+3 from Monday’s vote), Penny Mordaunt 92 (+10) and Liz Truss 86 (+15). On Wednesday the two names of the final battle will be decided after a new round.

EUR/GBP is bullish and is facing resistance at 0.8545

EUR/GBP continues to recover after falling to the 0.8400 area last week. The price is getting closer to the 20-day simple moving average which stands at 0.8542; so far it has failed to hold above the 55-day SMA at 0.8532. A daily close clearly above both lines should point to further euro strength. The bullish tone is likely to hold in the short term as long as it is above 0.8485.

Below 0.8460 a test of 0.8430 looks likely. A consolidation below 0.8430 should clear the way for more losses and a retest of 0.8400.

Technical levels