EUR/GBP Recovers to 20-Day SMA Amid Euro Strength

• The EUR/GBP pair recovered the 20-day SMA, approaching 0.8630, up close to 0.40%.
• The Euro is one of the most bullish currencies on Wednesday.
• No relevant data will be published for either of the two economies. The expectations of a tightening of the BOE and the ECB will set the pace.

In the middle of the week, the EUR/GBP pair recovered ground and settled above the 20-day simple moving average (SMA) at 0.8600. The Euro is trading higher against the US Dollar, the Swiss Franc, the Japanese Yen and the Australian Dollar, thanks to higher German yields, while the Pound is trading lower.

In a quiet week, expectations of tightening dictate the pace of the EUR/GBP, and rising German yields push the pair higher. The 10-year yield rose to 2.47%, while the 2-year yield stood at 3.09% and the 5-year yield at 2.53%, respectively, making the euro gain interest against its rivals. Attention now turns to data on gross domestic product (GDP) and inflation for the second quarter of July from the European Union, which will help investors shape the next decision of the European Central Bank (ECB), which will depend on the data.

On the Pound side, Friday’s GDP data will be key. The Bank of England reported in its latest monetary policy statement that it no longer expects a recession, so the economic outlook in the UK will have an impact on market participants’ bets on the BoE’s next decision. At the moment, they continue to bet, according to the World What Interest Rate Possibilities (WIRP), for a terminal rate of 5.75%, which means an additional tightening of 50 basis points for the rest of this cycle.

EUR/GBP levels to watch

The daily chart suggests that the technical outlook is neutral to bullish in the near term as bulls gain momentum but buyers still have some work to do. The Relative Strength Index (RSI) is sloping upward into bullish territory just above its midline, while the Moving Average Convergence Histogram (MACD) shows rising green bars. On the other hand, the pair is above the 20-day SMA but below the 100- and 200-day SMAs, indicating that there is still some light left for the bulls, but that the bears have the upper hand.

Support levels: 0.8600 (20-day SMA), 0.8570, 0.8530.

Resistance levels: 0.8670 (100-day SMA), 0.8680, 0.8700.

EUR/GBP Daily Chart