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EUR/GBP Price Action Set-Ups Ahead of BoE Rate Decision

EUR/GBP Price Action Set-Ups Ahead of BoE Rate Decision

Richard Snow, Markets Writer

EUR/GBP Analysis:

  • Could the Bank of England rate decision provide a spark to muted price action?
  • EUR/GBP continues to trade towards the bottom of the trading range
  • Sentiment remains ‘mixed’ after near term decline in long positioning
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BoE Interest Rate Decision Preview

On Thursday the Bank of England (BoE) will address the public regarding any changes to the interest rate or tapering of the Bank’s bond buying program. A change to the interest rate is highly unlikely to be considered before changes to the asset purchase program, which is likely to be the main focus.

Market participants will be waiting to hear how the bank views the most recent inflation figures (2.1% in May) alongside future inflation expectations, as the country looks forward to the delayed, July 19 end to lockdown.

Below are some of the main risk events impacting the pair in the coming days:

Econ calendar dailyFX

For all market-moving data releases and events see the DailyFX Economic Calendar

Key Technical Levels Leading up to the BoC Announcement

The daily chart below highlights the trading range where price has settled, after the temporary March/April break down. Price action remains rooted to the lower end of the channel, respecting the descending trendline on the way down. This is where the BoE comes into the picture. The pair could attempt to break below the range on the back of a bullish tone/message from the BoE much like we saw after FOMC members brought forward their expectations of hiking rates.

However, a more cautious and accommodating tone (most likely due to oping not to reign in accommodative policy tools) from the BoC could support the current trading environment and prolong the period of sideways movement.

EUR/GBP Daily Chart

EUR/GBP daily chart

Chart prepared by Richard Snow, IG

The 4 hour chart takes a closer look at the levels pertinent to the pair. A bounce off the 0.8540 – 0.8550 support zone (blue rectangle) remains the major challenge to a break down, after which there is very little standing in the way of a move back down to the 0.8470 level.

However, a bounce off the 0.8540 – 0.8550 zone could present an ideal launch pad for a move towards the descending trendline – continuing to trade within the range. Resistance on the way up stands at 0.8580 followed by what could possibly be the intersection of the descending trendline and the 0.8615 level.

EUR/GBP 4 Hour Chart

EUR/GBP 4 hour chart

Chart prepared by Richard Snow, IG

Sentiment Remains ‘Mixed’ Despite Strong Long Sentiment

EUR/GBP sentiment data
  • EUR/GBP: Retail trader data shows 65.42% of traders are net-long with the ratio of traders long to short at 1.89 to 1
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall.
  • However, the number of traders net-long is 15.54% higher than yesterday and 3.81% lower from last week, while the number of traders net-short is 17.53% lower than yesterday and 0.91% higher from last week.
  • Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/GBP trading reading.

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

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

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