Fears of a protracted downturn in the U.K. has tapered the rally in the British pound, and the EUR/GBP may continue to find support ahead of 0.8400 as investors weigh the outlook for future policy.
[B]Currency Pair:[/B] EUR/GBP
[B]Chart: [/B]60 Min Charts
[B]Short-Term Bias: [/B]Flat
Fears of a protracted downturn in the U.K. has tapered the rally in the British pound, and the EUR/GBP may continue to find support ahead of 0.8400 as investors weigh the outlook for future policy. After reaching a low of 0.7694 in October, the EUR/GBP surged to a high of 0.9805 in December as the Bank of England lowered the benchmark interest rate at a record pace however, as the BoE puts a floor on the interest rate and hold an improved outlook for future growth, we may see the pair continue to trend lower over the near-term as market participants anticipate the central bank to tighten policy over the next 12 months. Over the next few hours of trading, the euro-pound may continue to test 0.8500-10 (61.8% Fib) for short-term support, but a break below this level could lead the pair retrace the advance from the previous week, and may work its way towards 0.8423, the 6/16 low. However, as the RSI approaches oversold territory, moves to the downside are likely to be capped, and we may see the pair continue to trend sideways over the week. Nevertheless, as the economic docket is expected to reinforce an improved outlook for the U.K. economy, a rise in mortgage approvals paired with an increase in consumer confidence could lead the pair lower over the next 24 hours of trading, and the British pound may continue to benefit as investors raise bets for a BoE rate hike over the medium-term. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.
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