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EUR/GBP catches aggressive bids on Wednesday and moves back closer to a multi-month top.
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Expectations that the BoE is done hiking rates undermine the GBP and lend support to the cross.
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Speculations that the ECB will maintain the status quo on Thursday might cap any further gains.
The EUR/GBP cross, showing resilience below the 200-day SMA the previous day, attracted fresh buying on Wednesday and built on its intraday gains early in the European session. The spot price is currently trading around the 0.8720-0.8725 region and is well within striking distance of the highs touched last Friday, May 8.
As investors digest upbeat UK labor market data released on Tuesday, the Bank of England (BoE) is expected to keep the status quo in November on the back of the British pound’s relative weakness. This, in turn, is seen as a key factor acting as a tailwind for the EUR/GBP cross, which sees an additional increase following the release of the expected German IFO survey.
Indeed, the headline German IFO Business Climate Index rose to 86.9 in October, up from the previous month’s reading of 85.8, beating market expectations of 85.9. Adding to this, the current economic assessment index increased to 89.2 points in the said month compared to 88.7 and 88.5 estimates in September. Moreover, the IFO Expectations Index rose to 84.7 in October from 83.1 in September.
That said, growing acceptance that the European Central Bank (ECB) will end its most aggressive interest rate-hiking cycle on Thursday could prevent bulls from placing aggressive bets around the EUR/GBP cross. The ECB signaled in September that a rate hike, the 10th in a 14-month-long fight against inflation, might be its end. Adding to this, stagflation risks could compel the ECB to maintain stability.
The aforementioned mixed fundamental backdrop warrants some caution before positioning for any further appreciating move. From a technical perspective, however, the recent breakout and acceptance above the 200-day SMA suggests that the path of least resistance for the EUR/GBP cross is to the upside. Hence, a move beyond the monthly swing high, around the 0.8740 zone, looks like a distinct possibility.
Technical levels to watch
EUR/GBP
