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EUR/GBP Still Unable to Close Below Significant 0.8500 Support

FOREX
  • EURUSD (+0.14%) remains bid following the Eurozone inflation data and trades at the top end of its relatively narrow two-day range. In similar vein, EURGBP (+0.20%) has had a near 30 pip bounce from session lows, assisted by the moderate repricing of ECB cuts which now leaves ~4bp fewer cuts priced through year end when compared to yesterday’s close.
  • Overall conditions for EURGBP remain unchanged and a bearish theme is in play. Key supports have recently been pierced; the 0.8500 pivot level, and an important support zone between 0.8498, the Feb 14 low, and 0.8493, the Aug 23 ‘23 low. We have pointed to a clear break of these price points as strengthening the bearish technical theme.
  • However, despite multiple tests below the key 0.8500 mark, both this week and across the past year, EURGBP has been unable to close below this level since August 2022. A stronger recovery would target initial firm resistance at 0.8540, the 20-day EMA. Above here, the Apr 23 high and bull trigger is at 0.8645.
  • Next week’s key event risk will be the ECB decision as markets try to gauge expectations for future policy decisions, with today’s data pointing towards a cautious/hawkish hold. In the background, despite betting markets expecting a smooth Starmer victory on July 04, both the expectation of an increase in political noise and the prospects of a Labour government for the UK economy might continue to pose downside risks for sterling.
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