EUR/GBP Eyes Upside Ahead of Crucial ECB Decision

Traders' Opinions

Summary:

EUR/GBP holds around 0.8580 ahead of Thursday's expected 25-bps ECB hike. The Euro could strengthen into the decision, although hawkish BoE expectations and persistent UK inflation risks may limit the upside.

BUY EURGBP

EXP

TRADING

0.85929

Entry Price

0.86500

0.85500

0.85849 +0.00028 +0.03%

0.0

Pips

Flat

0.85500

Exit Price

0.85929

Entry Price

0.86500

EUR/GBP trades around 0.8580 on Wednesday, stabilizing after earlier volatility as investors position for Thursday's European Central Bank policy decision. The Euro could find additional support in the near term as markets prepare for another increase in Eurozone borrowing costs.

The ECB is widely expected to raise rates by 25 basis points to 2.50%, with the move now fully reflected in market pricing. Renewed inflation pressure has strengthened the case for further tightening after Eurozone inflation moved back above 3% in August, partly reflecting the sharp increase in energy costs associated with the ongoing US-Iran conflict.

ING's Carsten Brzeski expects policymakers to deliver what he describes as an "insurance" increase, while characterizing the expected decision as relatively dovish. This suggests that Thursday's market reaction may depend less on the widely anticipated hike itself and more on what the ECB communicates about the possibility of further tightening.

Sterling, however, continues to receive support from an increasingly cautious Bank of England. Governor Andrew Bailey has emphasized the upside risks to UK inflation as higher energy and refined-product prices threaten to filter through the economy.

The surge in energy costs resulting from the US-Iran confrontation, combined with disruptions involving Russian refining infrastructure, complicates the BoE's inflation outlook. Bailey has also acknowledged that UK mortgage rates have risen sharply, highlighting the significant tightening already being felt by households.

Nevertheless, persistent inflation risks make aggressive monetary easing increasingly difficult to justify. This should continue to provide underlying support for the Pound and could limit the extent of any EUR/GBP advance.

For now, EUR/GBP is caught between two relatively hawkish central banks. The Euro could gain some ground heading into Thursday's ECB decision, but Sterling's resilience means a sustained rally may require policymakers in Frankfurt to signal that additional tightening remains firmly on the table.

Technical Analysis

EUR/GBP is showing an increasingly constructive bullish structure on the 4-hour chart, with the cross recovering from its July lows and gradually establishing a sequence of higher lows. Price is currently trading around 0.8590, where buyers are attempting to establish a foothold above a previously important resistance area.

The 0.8580–0.8585 region is central to the current setup. This zone repeatedly restricted upside attempts throughout August, but recent price action has pushed through it. The subsequent pullback found renewed buying interest around the same area, suggesting that former resistance is beginning to function as support. This break-and-retest structure strengthens the case for further upside.

Near-term consolidation around 0.8580–0.8600 remains possible before momentum develops. As long as EUR/GBP continues to hold above the breakout zone, however, the technical picture favours another attempt higher. Clearing the recent swing high around 0.8605–0.8610 would provide additional confirmation that buyers are regaining control.

Beyond that point, the chart leaves room for a more substantial advance toward the major 0.8650–0.8655 resistance zone. This represents the primary upside objective and an area where stronger selling pressure could eventually return.

On the downside, a sustained move back below 0.8575 would weaken the immediate breakout structure and expose the broader 0.8530–0.8535 demand zone. That area has repeatedly attracted buyers and remains the key support protecting the developing recovery.

For now, the successful move through former resistance followed by renewed demand around 0.8580 suggests EUR/GBP could be preparing for its next bullish leg. A brief period of consolidation may develop first, but the preferred path remains a hold above the breakout zone followed by continuation toward 0.8650.

TRADE RECOMMENDATION

BUY EUR/GBP

ENTRY PRICE: 0.8593

STOP LOSS: 0.8550

TAKE PROFIT: 0.8650

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EUR/GBP Eyes Upside Ahead of Crucial ECB Decision

Technical Analysis

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