Can EUR/GBP break the downtrend?

Or, are we heading for pre-Brexit vote levels again?

The euro has been performing relatively well against the pound recently after a prolonged downward spiral going back to late 2020, but can it keep it up?

The pair was given another boost by the Bank of England on Thursday, despite the MPC agreeing on a third consecutive rate hike taking the base rate to 0.75%. What weighed on the pound and, therefore, lifted this pair was the fact that one policy-maker, Deputy Governor Jon Cunliffe, voted against raising interest rates, while the committee also tweaked the accompanying text to appear moderately less hawkish.

That may not sound like much, what with an enormous majority still favouring a rate hike and a small tweak barely altering the outlook, which remains highly uncertain anyway. But it’s all very deliberate and intended to send a message to the markets that they’re priced too aggressively and not in tune with where the Bank of England sees rates going. And the response in the markets has been to pare back further hikes this year to four from five.

This has dragged on the pound today and allowed EUR/GBP to hit its highest level since early February. And this may be where the pair could start to run into some resistance. The momentum indicators on the 4-hour chart don’t suggest they will but it will be interesting to see how they look over the coming days as this was an unexpected event-driven reaction that may not be enough to carry it much further.

The area between 0.8450 and 0.85 is littered with potential resistance points from prior levels of support and resistance to the 200/233-day simple moving average band. Rallies have repeatedly failed around this band since the pair broke below here at the start of last year so a break above here would be very significant.

The next test above in that event could fall around 0.86 but a breakout of that significance could signal a much stronger move to the upside. Another rejection there could have traders looking lower once more, which may mean a continuation of the long-established trend and perhaps a move back towards levels not seen since the Brexit vote almost six years ago.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.