EUR/GBP: Eyes 0.7200 after BOE rate decision

The EUR/GBP pair trades at 0.7257 after the Bank of England left key policy instruments unchanged as expected.

GBP favored in the previous session

The British Pound has seen a solid rise in volatility owing to election uncertainty and due to the deal between Royal Dutch Shell and BG group. The GBP/USD pair had shot higher to 1.4971 on Tuesday as the deal is a cash-and-share offer.

Meanwhile, the EUR/USD pair continued to decline as Greece issue dominated market sentiment. Moreover, in the absence of a major data across the Eurozone and/or UK, the markets focus on the divergent monetary policies adopted by the ECB and the BOE. Consequently, the EUR/GBP cross dipped to a low of 0.7225 in the previous session.

Slight uptick in the EUR/GBP today

As mentioned in the morning report, the strength in currency due to M&A deal usually does not last long and leads to a bull trap of sorts. The GBP/USD pair dropped to a low of 1.4763 before recovering to trade at 1.4829. The EUR/USD pair also followed suit, despite of an upbeat German economic data – industrial production and trade surplus.

Both the EUR and the GBP were hit by the FOMC minutes, which brought back June rate hike talks. However, the GBP erased M&A gains, while the EUR remained somewhat supported on Greece making payment to the IMF. Thus, the EUR/GBP pair ticked higher to 0.7278 levels, before giving up part of its gains to trade at 0.7260.

EUR/GBP could drop to 0.7200

The British Pound remained resilient despite of a sharp rise in the trade deficit in February. Furthermore, we have also seen the GBP erase its M&A gains. Attention now shifts to the UK industrial production data due for release tomorrow. Month-on-month, both industrial production as well as the manufacturing production is expected to bounce back into the positive territory.

Meanwhile, we do not have any major economic data due for release out of the Eurozone on Friday. Thus, the focus is likely to be on Greece. The good news – Grece confirms payment – failed to have any major positive impact on the pair. The EU has provided one week’s time to Greece in order to review its reforms. The Greek government is engaged in difficult talks to renegotiate the terms of its EU-IMF bailout, and as a result has received no money left in the multi-billion loan package. The uncertainty surrounding Greece is likely to keep the EUR under pressure.

Thus, in case of a disappointing US weekly jobless claims data, we are likely to see a sharp rebound in the British Pound. On the other hand, the EUR is likely to under perform.

EUR/GBP- Technicals

On the hourly charts, we see the pair has been rejected at the falling trend line resistance earlier today. The EUR is being offered in 0.7260-0.7270 range. At 0.7254 levels, the pair currently bearish as per the daily, hourly and 4-hour RSI.

More EUR offers await below the 200-MA on 4-hourly located at 0.7253. The immediate support is seen at 0.7221 (double top neckline), under which losses could be extended to 0.72-0.7198 (50% Fib retracement of 0.7012-0.7383).

38.2% Fib retracement at 0.7241 has acted as strong support earlier today, although a fresh drop below 200-MA on 4-hourly located at 0.7253 could breach the support at 0.7241.

Meanwhile, the immediate upside appears capped at the falling trend line resistance now located at 0.7266.