EUR / GBP rejects 200 and 0.8600 DMA, but still on track for solid weekly gains

• EUR GBP has failed to break above the 200 DMA in recent trading and is currently lateralized on the day.
• The cross continues to trade with significant gains following Thursday’s dovish BoE.

The EUR/GBP it tested its 200-day moving average at 0.8585 in previous trading, but for now it has failed to break above this key level, or in fact, it has failed to break above the psychologically important level of 0.8600. The cross is now back to practically lateralized in the session to just above 0.8560, although this still leaves it around 100 pips higher than levels prior to Thursday’s dovish Bank of England policy announcement and still well above. of the next notable level of support to the downside in the form of the 50 DMA just above 0.8520. If the EUR / GBP closed the week at these levels, it would end the week with gains of around 1.5%, the best week for the pair since a 2.0% gain was recorded in early April.

However, from a technical point of view, the recent rally does not yet seem to indicate a change in the long-term trajectory of the EUR / GBP. Since the rally in early April, the crossover has been fairly consistent in the sense that it dips lower and lower, followed by lower and lower highs. For long-term bearish technicians, the current levels could be seen as another example of a lower and lower high, which means a good selling opportunity.

Are EUR / GBP fundamentals favoring further decline?

From a fundamental point of view, the argument for a lower EUR / GBP is there too; While the Bank of England is in the midst of a communication nightmare after Thursday’s decision to counter market expectations and hold interest rates, it still seems highly likely that the bank will raise interest rates in the coming months. , as they have indicated would be appropriate, if the economy evolves as expected. Compare that to the ECB; Policymakers (led by ECB President Christine Lagarde) successfully managed to control expectations that the bank would raise rates in 2022 this week. Despite the events of this week, the ECB will still lag behind the Bank of England in terms of normalizing monetary policy to a significant degree. That means that in the coming months, rate spreads are likely to remain in favor of the British pound.

Meanwhile, the downside risks to the eurozone economy are increasingly evident. The latest German manufacturing output data showed that euro zone manufacturing remained on a weak base at the end of the third quarter as a result of supply chain disruptions. Manufacturing makes up a much smaller proportion of the UK economy. Meanwhile, unlike the UK, Covid-19 infection, hospitalization and death rates are rising dramatically in the euro zone at the moment, likely darkening the bloc’s economic outlook for the rest of the quarter and for the first quarter. quarter of 2022. This can also affect the euro against the British pound.

Technical levels