EUR/GBP Price Forecast: Mixed momentum signals point to more consolidation
- EUR/GBP remains trapped in a narrow range below the 50-day SMA at 0.8584.
- Momentum indicators retain a mild bullish bias, although fading MACD strength suggests the recent recovery is losing steam.
- A break above the 50-day SMA could expose the 100-day SMA at 0.8630, while 0.8550 offers immediate support.
The Euro (EUR) edges higher against the British Pound (GBP) on Friday, although price action has been confined to a narrow range over the past ten trading days, suggesting that the mid-July rebound from below 0.8500 is losing steam beneath a dense cluster of moving averages. At the time of writing, EUR/GBP trades around 0.8575.
Strategists at Rabobank argue that the recent shift in market expectations toward “steady policy from the BoE this year,” coupled with the prospect of heightened “nervousness ahead of the October budget,” points to “scope for downside pressure on the pound as the summer draws to a close.” In this context, the bank says it “favour[s] buying EUR/GBP on dips to the 0.8550 area,” adding that “a break above the recent high in the 0.8588 region could increase upside potential.”
From a technical perspective, the 50-day Simple Moving Average (SMA) at 0.8584 caps the immediate upside. A sustained break above this level would expose the 100-day SMA at 0.8630, followed by the 200-day SMA at 0.8675.
Momentum indicators offer mixed signals. The Relative Strength Index (RSI) stands at 54, reflecting a modest bullish bias, while the Moving Average Convergence Divergence (MACD) remains positive. However, the fading green histogram suggests that the recent recovery lacks enough momentum to decisively clear the moving averages for now.
On the downside, immediate support is located at the horizontal level of 0.8550, followed by the psychological mark of 0.8500. A decisive break below the latter would expose the year-to-date low near 0.8455.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Euro FAQs
What is the Euro?
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
What is the ECB and how does it impact the Euro?
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
How does inflation data impact the value of the Euro?
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
How does economic data influence the value of the Euro?
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
How does the Trade Balance impact the Euro?
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.