Bulls Could Regain Control from Current Support

Central Bank

Economic

Summary:

If the current support at 0.8270 holds firm and is accompanied by a bullish reaction, we could see a corrective move toward the 0.50 Fibonacci retracement level.

BUY EURGBP

Close Time

CLOSED

0.82818

Entry Price

0.83600

0.82400

0.86758 +0.00028 +0.03%

36.4

Pips

Loss

0.82400

0.82454

Exit Price

0.82818

Entry Price

0.83600

The looming threat of U.S. auto tariffs under former President Donald Trump’s proposed trade policies continues to cast a shadow over Germany’s already fragile economy, which has been grappling with economic contraction for the past two years. On Monday, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel acknowledged that Germany’s “strong export orientation” makes the country “particularly vulnerable” to the potential fallout from Trump’s tariffs, highlighting the economic headwinds Germany could face should these measures materialize.

European automotive stocks traded lower as concerns about tariffs and a cooling German economy weighed on investor sentiment. Additionally, traders are keeping a close eye on Sunday’s German federal elections, which are expected to deliver a victory for the center-right CDU. However, the potential for a stronger-than-anticipated showing by the far-right AfD could introduce fresh political uncertainty, adding another layer of complexity to the euro’s outlook.

On the monetary policy front, market participants have now fully priced in three additional interest rate cuts from the ECB this year. This expectation stems from concerns that inflation could remain below the central bank’s 2% target. Last week, the ECB lowered its deposit facility rate by 25 basis points (bps) to 2.75%, although policymakers refrained from committing to a predefined path for monetary easing, leaving the door open for adjustments based on incoming data.

However, contrary to market expectations of an aggressive rate-cutting cycle, ECB Executive Board member Isabel Schnabel suggested in an interview with the Financial Times that the central bank may consider a "pause" in its monetary expansion efforts. Schnabel warned that inflation risks have recently tilted to the upside, citing persistent domestic inflationary pressures, elevated wage growth, and fresh energy price shocks, even as borrowing costs have eased significantly. Her hawkish remarks tempered some of the market’s dovish outlook on ECB policy.

Meanwhile, across the channel, the UK’s Office for National Statistics (ONS) reported that January’s Consumer Price Index (CPI) rose by 3.0% year-over-year, up from December’s 2.5% increase and exceeding market expectations of 2.8%. This figure remains well above the Bank of England’s (BoE) 2% inflation target, reinforcing the view that inflationary pressures in the UK economy remain persistent.

BoE policymakers had previously acknowledged that inflation could rise in the short term due to higher energy prices before gradually returning to target levels. Earlier this week, BoE Governor Andrew Bailey reiterated that while inflation might experience a temporary uptick, he does not expect it to be long-lasting and continues to see a gradual disinflationary trend. Bulls Could Regain Control from Current Support_1

Bulls Could Regain Control from Current Support_1

Technical Analysis

The EUR/GBP pair has revisited the critical support zone near 0.8270, an area where price consolidation previously occurred before triggering a bullish rally that took the pair to a local high of 0.8474 on January 20. Since then, however, the euro has faced persistent downside pressure, largely driven by weak economic data out of the Eurozone. This sustained bearish momentum has pushed the RSI on the 4-hour chart to an oversold reading of 26, signaling strong selling exhaustion that could set the stage for a potential bullish reversal.

Adding to the technical confluence, the 100-period and 200-period moving averages recently formed a death cross, a bearish signal, and are now positioned near the 0.8330 and 0.8363 levels, respectively. However, if the current support at 0.8270 holds firm and is accompanied by a bullish reaction, we could see a corrective move toward the 0.50 Fibonacci retracement level, which sits around 0.8370 — conveniently close to the 200-period moving average.

On the flip side, a decisive break below the 0.8250 support zone could invalidate this bullish scenario and open the door to further losses.

Trading Recommendations

Trading direction: Buy

Entry price: 0.8280

Target price: 0.8360

Stop loss: 0.8240

Validity: Feb 28, 2025 15:00:00

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Bulls Could Regain Control from Current Support

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