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EURGBP braces for BoE/ECB tag team

  • BoE/ECB combo could rock EURGBP
  • Both central banks expected to leave rates unchanged 
  • Keep eye on updated ECB economic projections
  • 21-day EMA acting as possible resistance  
  • A falling wedge is seen on the weekly chart

A super central bank combo featuring the Bank of England (BoE) and European Central Bank (ECB) could rock the EURGBP today.

After struggling for direction over the last few days, the currency pair seems to be gaining momentum following the Fed decision overnight. Interest rates were left unchanged as widely expected but the key takeaway was the Fed signaling that it could start cutting rates next year in the face of cooling inflation. Traders are now pricing in a 25-basis point rate cut by March 2024!

The EURGBP could be injected with fresh volatility as the focus falls on the BoE and ECB meetings this afternoon. 

At the time of writing, prices are flirting around the 21-day EMA and just below the 50-day EMA. This is coming on the heels of a 3-day rise in after finding support on is 261.8 Fibonacci level at 0.85629.

With the central bank rate decisions looming ahead, bulls and bears will be looking to ride on the expected volatility to test key levels ahead.

Before breaking down the technicals, it is worth noting that:

BoE rate decision at 12pm GMT

  • The BoE is expected to leave interest rates unchanged for a third straight meeting
  • Signs of cooling inflation in the UK support the argument over the BoE ending its hiking cycle
  • Traders are currently pricing in a 74% probability of a 25 basis point cut by March 2024

ECB rate decision at 1:15 pm GMT

  • The ECB is expected to leave interest rates unchanged at 4.0%
  • Inflation in the Euro Area slipped to 2.4% in November, its lowest level since July 2021
  • Traders are currently pricing in a 90% probability of a 25-basis point cut my March 2024
  • Keep eye on updated ECB economic projections. 

While both central banks are expected to leave their respective rates unchanged, any fresh clues on what actions may be taken in 2024 could spark volatility.

Technically speaking…

EURGBP is posting a falling wedge on the weekly time frame. This wedge has been in formation since November 4th, 2022.

According to Thomas Bulkowski, in his book “The Encyclopaedia of Chart Patterns”,

A falling wedge is more likely to break to the upside and

  • has a 62% chance of meeting its target.  
  • has a 26% breakeven failure rate.
  • is ranked 31 out of 39

On the Daily timeframe:

Channel buyers will be looking for tests and possible breaches of the following levels

  • 0.86405: the 161.8 golden Fibonacci ratio
  • The 50-day EMA

Bears on the other hand will watch to see if the above levels hold as resistance for a decline to new lows below.

  • 0.85629: the 261.8 Fibonacci level (former support)
  • 0.85487: the most recent low since the decline from the November 16ths high at 0.87656

Both bulls and bears will be looking for market volatility to drive the price to the upper and lower bands of the falling wedge at 0.87539 and 0.84623 respectively.


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