EUR/GBP Price Forecast – Is the Bearish Regime Over?

ByDawn Pipkin

May 26, 2022

Briefly –

  • EUR/GBP rebounded from its lows.
  • ECB to end negative interest rates
  • An inverse head & shoulders setup suggests more upside.

The British pound (GBP) gained against the euro since the Brexit. Though many analysts predicted declines in the pound, the currency reclaimed ground amidst a persistent bearish trend. The massive downward trend threatened some experts who believe EUR/GBP would have its exchange rate risk hovering at 0.84 in March 2023.

While publishing this blog, the EUR/GBP pair traded at 0.85, following a bounce from its lows. Moreover, it appears constructive from technical and fundamental standpoints. So, what about the upcoming actions from the exchange rate? This price forecast considers both fundamental and technical aspects.

The Two Banks’ Monetary Policy to Diverge

The fundamental standpoint

A currency moves according to the financial policy differences between two central banks. In this context, the BOE (Bank of England) was among the leading central banks globally to increase interest rates following the COVID-driven recession. Moreover, the bank did that several times.

On the other side, the ECB (European Central Bank) did nothing. It refrained from such moves as war emerged in Eastern Europe (Ukraine vs. Russia).

The ECB took a wait-and-see approach to shield European economies from the effects of war on the economy. Nevertheless, inflation escalates that the bank’s target and the conflict remain one of the reasons.

ECB recently revealed plans to stop negative interest rates by September this year. With the deposit facility rate at -50 basis points, summer might witness several rate highs from the European Central Banks.

Meanwhile, the BOE maintains a wait-and-see standpoint. Therefore, fundamentals favor upside moves in EUR/GBP exchange rate come summer.

Inverse Head & Shoulders Indicate EUR/GBP Struggling to Conquer Resistance

The technical viewpoint

The move toward 0.82 might have the market bottoming. It retraced within no time, indicating an inverse head & shoulders setup.

A closing beyond 0.86 would clear the road to 0.90. That’s the pattern’s prediction, and such a move would break the lower peaks series, therefore, ending the bearish narrative. For now, EUR/GBP exhibits bullishness as fundamental and technical aspects support additions strength in the coming months.

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