EUR/GBP Buyers Face Key Resistance Amid Pound Weakness

Market Overview

The euro (EUR) gained traction against the British pound (GBP) on Monday, pushing the EUR/GBP pair to a five-month high. This movement comes as the pound struggles under the weight of weak economic data and dovish remarks from a Bank of England (BoE) official. Investors have ramped up speculation regarding potential interest rate cuts by the BoE, expecting up to four reductions in 2025. Although the pound found some relief against the US dollar, the downward pressure against the euro remains pronounced due to the divergence in economic outlooks between the UK and the eurozone.

Technical Analysis

On the four-hour chart, EUR/GBP continues its upward trajectory, attempting to break above the critical resistance level of 0.84645. A successful breakout above this level would reinforce bullish sentiment, allowing buyers to target the next resistance zones at 0.84814 and subsequently 0.85029. The ultimate bullish target lies at 0.85266, representing a significant level for sustained upward momentum.

Momentum indicators corroborate the strengthening bullish sentiment. The RSI has risen firmly, while remaining within neutral territory, signaling that further upward movement remains feasible without immediate risk of overbought conditions. Meanwhile, the MACD histogram confirms the strengthening momentum with positive divergence, supported by upward-sloping moving averages that act as dynamic support.

However, should buyers fail to breach the resistance at 0.84645, the pair may retrace to test the first key support at 0.84408. A break below this level would expose EUR/GBP to further downside, with sellers potentially targeting 0.84024. A sustained break below 0.84024 would invalidate the current bullish scenario and shift the focus toward bearish control.

Oscillators and Risk Warnings

• RSI: Bullish, signaling strong momentum with room for further upside.
• MACD: Bullish, confirming strengthening momentum.
• Moving Averages: Positive, providing dynamic support to the ongoing uptrend.

Alternative Scenario

If EUR/GBP sellers regain control and manage to drive the price below 0.84024, the outlook would turn bearish. In such a case, the pair could retrace further, targeting additional support levels and potentially reversing the recent upward momentum.

Key Technical Levels

• Resistance Levels: 0.84645, 0.84814, 0.85029, 0.85266
• Support Levels: 0.84408, 0.84024

Fundamental Factors

The pound remains under pressure after recent UK economic data painted a bleak picture. Retail sales in December fell by 0.3%, defying expectations of growth. Additionally, consumer price growth metrics have sharply declined, prompting expectations for a dovish BoE in 2025. Markets are increasingly pricing in the possibility of four interest rate cuts this year.

On the eurozone side, focus shifts to Tuesday’s ZEW Economic Sentiment Index for both Germany and the eurozone. Expectations of improved economic sentiment could further support the euro’s strength. Additionally, the UK labor market report, also scheduled for Tuesday, will be scrutinized for its impact on the BoE’s policy trajectory.

Conclusion

EUR/GBP remains firmly in an upward trend, supported by strong euro fundamentals and a weakening pound. The pair’s immediate focus lies on breaking the resistance at 0.84645, which, if breached, could pave the way for higher targets. Conversely, failure to hold above this level could invite sellers to reassert control.

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