EUR/GBP Price Analysis: Volatility contraction deepens as ECB-BoE policy divergence to remain steady

The EUR/GBP pair has remained inside the woods around 0.8600 as investors have sidelined ahead of the interest rate decisions by the Bank of England (BoE) and the European Central Bank (ECB). Considering the fact that inflation in Eurozone and the United Kingdom is still stubborn despite the long practice of raising interest rates, the BoE and the ECB are expected to raise rates further.

The street is anticipating that both central banks will raise their current rates by 25 basis points (bps). This will push ECB’s policy rate to 4% while BoE’s financing rate would jump to 4.75%. An occurrence of the same will keep the ECB-BoE policy divergence steady in absolute terms.

EUR/GBP has delivered a breakout of the Falling Channel chart pattern formed on an hourly scale in which each pullback is considered as a selling opportunity by the market participants. A breakout of the aforementioned chart pattern warrants a bullish reversal.

The cross has climbed comfortably above the 50-period Exponential Moving Average (EMA) at 0.8600, which indicates that the short-term trend has turned positive.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted its broader trading range from the bearish range of 20.00-60.00 to the bullish range of 40.00-80.00. The momentum indicator is consistently taking support near 40.00.

Going forward, an upside move above the intraday high at 0.8614 will drive the asset toward June 05 high of 0.8636 and May 25 low at 0.8666.

In an alternate scenario, a downside move below June 01 low at 0.8568 would drag the cross toward a six-month low near 01 December 2022 low at 0.8547 followed by 12 August 2022 high at 0.8493.

EUR/GBP hourly chart