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Euro, Pound Technical Analysis: EUR/USD, GBP/USD, EUR/GBP

Euro, Pound Technical Analysis: EUR/USD, GBP/USD, EUR/GBP

James Stanley,
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Euro, Pound, EUR/USD, GBP/USD, EUR/GBP Talking Points:

  • This morning brought rate decisions out of the Bank of England and the European Central Bank.
  • While the Bank of England hiked rates, GBP/USD showed a restrained move of strength. And even though the ECB merely opened the door to a possible shift, EUR/USD has put in a concerted topside breakout. EUR/GBP has put in an aggressive bounce on this outlay, highlighting the ever-important role of expectations in Forex analysis.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
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It’s been a busy morning and the week’s not over. Tomorrow brings Non-farm Payrolls so potential remains for some workable volatility into the end of the week.

This morning’s events were not without fanfare. The Bank of England hiked rates again, with a 25 basis point move while some market participants had begun to build expectations for a 50 basis point move. This has led to a restrained move higher in GBP/USD; but it’s the move in EUR/USD that’s catching so much attention as a simple hint that the ECB may be looking at ‘less dovish’ policy options later this year caused a strong topside move.

The net of these two themes can be observed in EUR/GBP, which set a fresh yearly low ahead of the BoE rate decision – only to reverse the entirety of that move while jumping back up to near-term resistance after the ECB.

Along the way, the punishment in the US Dollar has continued and the currency is now nearing oversold territory on the four-hour chart – very similar to what happened a few weeks ago fresh on the heels of that 7% CPI print. Of course, the currency went back into overbought territory last week; but much has changed over the past few days and building expectations for a negative print in tomorrow’s payroll report have helped to drive the USD back into oversold territory.

I’ll look at individual scenarios in the majors of EUR/USD and GBP/USD below.

EUR/GBP Four-Hour Price Chart: Shifting Expectations Push Reversal

EURGBP price chart

Chart prepared by James Stanley; EURGBP on Tradingview

EUR/USD Continues Bullish Run

I highlighted a morning star formation that had built in EUR/USD on Monday of this week. Such formations are often followed with the aim of bullish reversals, often located near major market bottoms. And while it’s still not clear as to whether last week’s low ultimately ends up as the bottom – it has led to some very strong price action this week which flies in stark contrast to just last week.

The source of the move appears two-sided: USD weakness has driven in due to a combination of factors, key of which has been the building expectation for a negative print at tomorrow’s NFP release. This was somewhat driven by the massive miss in ADP data yesterday, coming in at -307k v/s the expectation for +201k. But, as we’ve shared before ADP can be a lousy predictor of NFP.

So, while there’s absolutely no way to predict tomorrow’s print it is apparent that expectations have been dwindling, bringing the USD with it. This can make for an exciting scenario tomorrow as the lowered bar will not be difficult for the USD and NFP to clear. And, in-turn, this can make reversal scenarios in the currency as somewhat attractive.

The other element that’s helped this reversal to build is the same that seems to be drawing so much ire on social media – and that’s the potential for the ECB to hike rates at some point this year. The ECB has long been considered one of the more dovish Central Banks and that expectation helped to drive the pair down to fresh yearly lows just last week.

But, the simple hint from the ECB that the bank may be looking at making policy ‘less loose’ at some point this year was a factor that wasn’t yet priced-in. And that’s why this morning’s move of EUR/USD strength has been greater than that in GBP/USD, even though the BoE did, in fact, hike rates.

But again, this simply sets the table up for possible fades on the back of this recent delta in expectations. The next major zone of resistance on my chart is the same that turned around the advance a couple of weeks ago, just after that 7% CPI print out of the U.S.. This resides at 1.1448-1.1500, and if prices can trickle up to this zone ahead of tomorrow’s NFP print, combined with some element of resistance showing, fade plays can remain attractive into tomorrow’s release.

EUR/USD Four-Hour Price Chart

EURUSD price chart

Chart prepared by James Stanley; EURUSD on Tradingview

GBP/USD After the BoE Hike

The Bank of England actually hiked rates this morning. And, also unlike the ECB, there’s considerable expectation for much more tightening this year. But, the topside move in GBP/USD is tame by comparison to what we’ve seen in EUR/USD.

The reason for this draws right back to expectations. While the BoE hiked and was somewhat hawkish, they weren’t as hawkish as what markets have started to build in expectations for, and this has led to a more moderated move in GBP/USD. But, taking a step back and there’s still some possible encouragement on the bullish side as the pair has held support at prior bull flag resistance.

Given how stretched the USD is to the downside, however, bullish strategies may not have the most forgiving backdrop in GBP/USD. But, watching for a hold of support above 1.3500 can keep the door open on the long side of the pair.

For those looking for a fade in the pair, the 1.3610 level seems relevant given this morning’s price action, and a daily close below that level can keep the door open for such.

GBP/USD Daily Price Chart

GBPUSD daily price chart

Chart prepared by James Stanley; GBPUSD on Tradingview

--- Written by James Stanley, Senior Strategist for

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.