Or, will we reach pre-Brexit voting levels again?
EUR/GBP has performed relatively well recently after a prolonged downturn dating back to the end of 2020, but can it hold up?
The Bank of England gave the pair another boost on Thursday, despite the Monetary Policy Committee agreeing to raise the benchmark rate to 0.75% for a third consecutive rate hike. What weighed on the pound and thus boosted the pair was a vote by one policymaker, Deputy Governor Jon Cunliffe against a rate hike, and the committee tweaked the accompanying text to make it appear Not so hawkish.
That may not sound like much, as the vast majority still support rate hikes, and a small adjustment would hardly change the outlook, which remains highly uncertain anyway. But it was all deliberate and aimed at sending a message to the market that they were being priced too aggressively and at odds with the Bank of England’s rate movement. The market responded by reducing further rate hikes this year from five to four.
This dragged down the pound today, taking EUR/GBP to its highest level since early February. This may be where the pair starts to encounter some resistance. Momentum indicators on the 4-hour chart do not imply they will, but it will be interesting to see how they perform in the coming days as this is an unexpected event-driven reaction that may not be enough to push it further.
The area between 0.8450 and 0.85 is interspersed with potential resistance points from previous support and resistance from the 200/233-day simple moving average. Since the pair broke below it at the beginning of last year, rallies in this range have failed repeatedly, so a breakout here will be important.
In this case, the next test above could be a drop to around 0.86, but a break above that could signal a stronger uptrend. If it is rejected again, traders are likely to head lower again, which could signal a continuation of the long-term trend and possibly a return to levels not seen since the Brexit referendum nearly six years ago.
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