EUR/GBP Tests the 0.85 Support As DAX30 Approaches 18,000

The euro to pound exchange rate has been stuck in a 100 pip range so far in 2024, but it seems like we’re going to see a break to the downside, as EUR/GBP retests the support at 0.85. The selling pressure for this pair has returned recently, as the market has different expectations for the ECB and the BOE.

EUR/GBP has been experiencing a persistent bearish trend since September 2021, making higher lows. This trend is characterized by repeated attempts at bullish movements being met with resistance from sellers, with moving averages helping in the way. Despite occasional spikes in price, sellers have come back and have consistently pushed highs lower, indicating a strong downward pressure on the pair.

The 50 SMA (yellow) in particular, has started to act as a significant resistance level recently, as observed from yesterday’s price rejection at this moving average. In February EUR/GBP rose after finding support at 0.85, gaining around 90 pips and pierced the 50 SMA, but couldn’t close above this moving average.

Ultimately it failed to sustain these gains, signaling that buyers were unable to maintain the price at that level. The failure to hold above the 50 SMA and the return back to the support suggests that the bearish sentiment remains dominant in the market. Overall, the persistent bearish trend in the EUR/GBP pair, coupled with resistance from key moving averages such as the 50 SMA, indicates a challenging environment for buyers, as sellers maintain control of the market at the moment. Now a break below this support zone would open the door for further declines toward 0.84 and lower.

The statements from Francois Villeroy and Joachim Nagel, both prominent members of the European Central Bank’s Governing Council, suggesting a potential rate cut in the spring, had a sizeable impact on the forex market. The euro (EUR) softened and closed the week at the lows, just above 0.85 against the pound sterling (GBP) as of Friday.

Villeroy’s indication that a rate cut in the spring is “very likely” provides a clear timeline, as he noted that spring means “April, May and June.” This suggests that the ECB might consider a rate cut within that period, most likely in April. Additionally, Joachim Nagel’s statement further reinforces this sentiment, stating that the probability of an interest-rate cut before the summer break is increasing.

He also highlighted that the decision would depend on data but suggested that the prospects for a rate cut have brightened. Lower interest rates tend to make a currency less attractive to foreign investors, as they receive lower returns on their investments. Therefore, the remarks from these ECB officials have led to a broad weakening of the euro as investors anticipate a potential rate cut, impacting its appeal in the foreign exchange market.