EUR/GBP Bears Push for Breakout Amid Mixed Economic Signals

10/10/2024

Market Overview

On Thursday, the EUR/GBP pair continued to face downward pressure amidst a mix of macroeconomic uncertainties from both sides. The euro struggled due to expectations that the European Central Bank (ECB) would continue its rate-cutting path. Markets anticipate two more rate cuts of 25 basis points each in October and December, in response to weakening economic activity across the eurozone. Although a positive trade surplus was reported from Germany, broader concerns about persistent inflation and economic slowdown continued to weigh on the euro.

Meanwhile, the British pound faced its own set of challenges, driven by speculation surrounding the upcoming UK budget. While there are hopes for growth-oriented fiscal policies, concerns over spiraling public debt levels have kept investors cautious, contributing to increased volatility in the pound. The upcoming release of the UK’s Gross Domestic Product (GDP) figures will likely play a crucial role in shaping market sentiment. If the GDP numbers come in stronger than expected, it could lend significant support to the pound as the week progresses.

Technical Analysis

In the four-hour chart, EUR/GBP remains under a descending trendline, which underscores the prevailing bearish pressure. Currently, sellers are attempting to break below the 0.83645 support level, which could pave the way for further downside momentum. If successful, the next targets are 0.83589, 0.83499, and ultimately 0.83443.

Price action is nearing the lower band of the Bollinger Bands, which suggests that the pair may be in an oversold condition. However, this proximity to the lower band could also indicate an imminent breakout to the downside if sellers maintain their pressure.

The Relative Strength Index (RSI) stands at 45.79, indicating a neutral to slightly bearish sentiment. Importantly, RSI has yet to enter the oversold zone, which suggests there is still room for further declines before a significant rebound might occur. The MACD is also hovering near the zero line, pointing to a lack of strong momentum in either direction. A crossover—whether bullish or bearish—could provide additional clarity regarding the next directional move for this pair.

Should the price break below the crucial support at 0.83645, we could see acceleration towards the lower support levels. Conversely, failure to sustain the downward momentum could lead to a consolidation phase before any further directional movement.

Technical Indicators Summary

RSI: Currently at 45.79, indicating a neutral-to-bearish sentiment.

MACD: Hovering near the zero line, lacking strong directional momentum.

Bollinger Bands: Price near the lower band, suggesting possible oversold conditions or an imminent breakout.

Alternative Scenario

On the other hand, if buyers manage to regain control and the price breaks above the 0.83881 resistance level, it could signal the continuation of a bullish correction. In this case, the EUR/GBP pair could move towards higher resistance levels, potentially reversing the current downtrend.

Key Levels Overview

Resistance Levels:

Resistance 1: 0.83735
Resistance 2: 0.83808
Resistance 3: 0.83881
Current Price: 0.83680
Support Levels:
Support 1: 0.83645
Support 2: 0.83589
Support 3: 0.83499
Support 4: 0.83443

Key Events to Watch

Investors should remain attentive to upcoming ECB events that could influence the direction of the EUR/GBP. Following another decline in German retail sales, which negatively impacted the euro, attention now shifts to a speech by Joachim Nagel, a key member of the ECB Governing Council, and the ECB monetary policy meeting minutes, both scheduled for release today.

These events could provide significant insights into the ECB’s policy direction, especially concerning future rate cuts and their assessment of inflationary pressures. Should the ECB’s tone appear more dovish than expected, the euro may face additional downside risks.

On the UK side, the upcoming GDP report could have a substantial impact. Better-than-expected growth figures might bolster the pound, potentially disrupting the current bearish trend in EUR/GBP.

Conclusion

The EUR/GBP pair remains under pressure as sellers push to extend the ongoing downtrend. A successful break below the key support at 0.83645 could lead to further declines, with potential targets at 0.83589, 0.83499, and 0.83443. However, if buyers regain momentum, a move above 0.83881 could signal a broader recovery, shifting the current outlook. With key ECB and UK economic events on the horizon, market participants should stay vigilant for potential volatility. The direction of the EUR/GBP pair in the coming sessions will largely depend on these critical data points and their implications for future monetary policy stances in both the eurozone and the UK.