EUR/GBP Technical: Hovering at a 21-month low ahead of ECB

• The FX market is likely to have fully priced in a 25-bps cut from the ECB today, hence it is likely going to be a non-event.
• The catalysts that may trigger a significant intraday movement in the FX market are new forward guidance (if any) from ECB President Lagarde and the latest Eurozone inflation trend forecasts.
• Watch the 0.8540 key short-term resistance on the EUR/GBP.

The price actions of the EUR/GBP cross pair have inched lower in the past three weeks and hit a 21-month low of 0.8490 last Wednesday, 29 May 2024 ahead of today’s European Central Bank (ECB) monetary policy decision.

It has been well-telegraphed by ECB officials in the past month since the last monetary policy meeting in April that the ECB is likely to enact its first 25 basis points (bps) interest rate cut today on its policy deposit facility rate and main refinancing rate from 4% and 4.5% to 3.75% and 4.25% respectively after on hold for five consecutive meetings.

Hence, it is likely that today’s potential first ECB interest rate cut has been fully priced into the market and its actions may not trigger any significant movements in the FX market.

Focus will be on new forward guidance & latest Eurozone inflationary trend forecasts

Given the public speeches made by ECB officials in the past two weeks, the forward guidance to kickstart a major monetary policy easing cycle in the Eurozone looks uncertain at this juncture amid signs that inflation may prove stickier than expected as the preliminary Eurozone core inflation data for May inched higher to 2.9% y/y from 2.7% y/y in April and above the consensus estimates of 2.8% y/y after nine months of deceleration seen on its inflation trend.

Therefore, any new forward guidance from ECB President Lagarde’s press conference after the monetary policy decision announcement and new inflationary trend forecasts from ECB are likely to be the major catalysts that can drive potential significant intraday movements in the FX market.

A dovish speech from ECB President Lagarde coupled with further downward revision on its headline inflation trend forecasts below the earlier projected growth of 2.3% y/y for 2024 and 2.0% y/y in 2025 may keep the doves alive for an increased chance of another rate cut in September.

EUR/GBP is still entrenched within a minor downtrend phase

Fig 1: EUR/GBP major trend as of 6 Jun 2024 (Source: TradingView, click to enlarge chart)

Fig 2: EUR/GBP short-term trend as of 6 Jun 2024 (Source: TradingView, click to enlarge chart)

Through the lens of technical analysis, the price actions of the EUR/GBP have continued to oscillate within a minor descending channel in place since the 23 April 2024 high which depicts an ongoing minor downtrend phase.

Several bearish elements are supporting further potential weakness in the EUR/GBP to potentially have a breakdown below its recent 21-month low of 0.8490.

Firstly, the price actions of EUR/GBP are still trading below its downward-sloping 20-day moving average. Secondly, since its 14 May 2024 minor swing high of 0.8615, its price actions have developed into a steeper descending channel (depicted in grey in Fig 2) which suggests a potential acceleration on its downward trend movement.

Watch the 0.8540 key short-term pivotal resistance and a break below the 0.8490 key near-term support exposes the next supports at 0.8470 and 0.8440 in the first step.

On the other hand, a clearance above 0.8540 negates the bearish tone to see the next near-term resistance coming in at 0.8580 (also the upper boundary of the minor descending channel from 23 April 2024 high).