- EUR/GBP is range-bound during the New York session, trapped around the 0.8430-60 range.
- Central bank policy divergence will ultimately benefit the British pound.
- EUR/GBP: A break below 0.8400 could open the door for a test of 2020 lows around 0.8340.
The EUR/GBP edges lower during the New York session, losing 0.25%, trading at 0.8435 at the time of writing. Investors’ appetite for riskier assets is on, as US stock indices rise between 0.43% and 0.67%, on the back of good US Q3 corporate earnings, which seem to ease markets’ worries about inflation.
Central bank policy divergence boosts the British pound
Over the weekend, ECB President Christine Lagarde reiterated that inflation is transitory. Meanwhile, her counterpart BoE’s Governor Andrew Bailey commented that the Bank of England “Will have to act” to curb inflationary pressures.
EUR/GBP Price Forecast: Technical outlook
The EUR/GBP daily chart shows the pair is in a downtrend, but testing support at 0.8430, which was unsuccessfully tested two times. The Relative Strength Index (RSI), a momentum indicator, is at 34, edging lower, indicating downward pressure on the cross.
For British pound buyers, a breach below the 2021 lows could send the pair tumbling towards the 2020 lows of February 18, 2020, at 0.8348, followed by the 0.8300 figure. Nonetheless, cautions is warranted, as the RSI at 34 suggests the EUR/GBP pair could reach oversold levels that could trigger a correction before resuming the previous trend.
For euro buyers, a daily close above 0.8500 would be necessary to challenge EUR/GBP sellers. In that outcome, the first resistance level would be the confluence of the 50 and the 100-day moving averages (DMA’s) around the 0.8540-0.8555 area. A clear break of the before-mentioned could spur a rally towards the convergence of a downward slope trendline, with the 200-DMA and 0.8600 psychological level.
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