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EUR/GBP Outlook Bullish Ahead of Brexit, BoE Rate Decision

EUR/GBP Outlook Bullish Ahead of Brexit, BoE Rate Decision

Dimitri Zabelin, Analyst

BRITISH POUND, EURO, EUR/GBP PRICE FORECAST – TALKING POINTS

  • British Pound outlook bearish ahead of BoE rate decision, Brexit
  • A selloff in Sterling may propel EUR/GBP towards key resistance
  • Bumpy road ahead for GBP as officials scramble for a trade deal

EUR/GBP TECHNICAL ANALYSIS

EUR/GBP may attempt to crack resistance at 0.8533 in the week ahead. Failure to do so may be met with disappointment and could cause discouraged EUR/GBP bulls to unload their positions. Selling pressure may abate around 0.8454 and the pair may then trade sideways within the 0.8597-0.8454 range again as they have since November 2019.

EUR/GBP – DAILY CHART

Chart showing EUR/GBP

EUR/GBP chart created using TradingView

Conversely, if the pair break the ceiling with follow-through, it could open the door to testing a key range that has remained unchallenged since January 14, and December 25 before that. Both times, the pair retreated from resistance and resulted in a decline. A third capitulation could lead to an aggressive selloff. However, if EUR/GBP breaks it with confirmation, it could mark a tectonic shift in the pair’s short-term trajectory.

EUR/GBP – DAILY CHART

Chart showing EUR/GBP

EUR/GBP chart created using TradingView

BRITISH POUND FUNDAMENTAL ANALYSIS

The British Pound may face selling pressure ahead of the Bank of England rate decision – even if rates are left unchanged. Overnight index swaps are currently pricing in a 50 percent chance that officials elect to cut rates by 25 basis points. The upcoming meeting on January 30 will also be Governor Mark Carney’s final chairing as head of the BoE. Therefore, his parting words may carry a premium to the extent that they impact markets.

Chart showing Bank of England

Leading up to this decision, Mr. Carney along with a few officials have debated the merits of “near-term stimulus” in light of the UK’s growth-sapping political debacle. Unexpectedly dovish rhetoric could cause the British Pound to retreat as the UK prepares to officially depart from the EU on January 31. Growing doubt of the UK’s ability to ratify a trade deal before the December 31, 2020 deadline could further pressure GBP.

EUR/GBP TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

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

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