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EURGBP Keeps Declining with Rising Interest Rates - Zeal Capital Market

EURGBP Keeps Declining with Rising Interest Rates

06-01-2022 06:18

Euro Pound Falling Down to a Near Long-term Support

After the Bank of England (BoE) increased UK’s interest rates at the end of last December, Pound Sterling’s value increased significantly, pushing the EURGBP pair further down, breaking the weekly and daily support, reaching out to the monthly support. From an inflation perspective, the UK inflation won’t top to the 6% vicinity until April – in comparison to the Eurozone inflation which can be seen peaking around now as German VAT modifications fall out with inside the base effects. The UK government’s selection to strength through the Omicron surge with exceedingly-few regulations appears to had been rewarded via way of means of investors. Here the motive appears to be that an open economic system and persevered excessive strength expenses will preserve the threat in addition BoE tightening in February in play.

Quick Recap on EUR/GBP

TL;DR: EUR/GBP sees bearish trends on the monthly and weekly TFs and breaking its past support on the daily TF.

Let’s dive in a little deeper to see how EUR/GBP fare on multiple timeframes:

EUR/GBP Monthly Technical Analysis

EURGBP Keeps Declining with Rising Interest Rates - Zeal Capital Market
Graph taken from TradingView.

From the monthly timeframe, we can confirm that this pair is declining in a major ranging area. Last month, EG closed bearishly, confirming a resistance that has been created to push EG even lower. The December candle shows us the impact of BoE’s decision that strengthen the pound. What we can take from this is that it can be a clear indicator that EG is going to go along with this trend and follow through as long as it closes bearishly every other candle.

EUR/GBP Weekly Technical Analysis

EURGBP Keeps Declining with Rising Interest Rates - Zeal Capital Market
Graph taken from TradingView.

The weekly timeframe shows us that EG is closed bearish for 4 times in a row. Even this current weekly candle has broke the previous weekly low and also the weekly support. Now, it’s ready to dive deeper retesting the stronger weekly support. Combining with the 50, 100, and 200 MA lines that confirm the bearish trend of EURGBP based on weekly timeframe.

EUR/GBP Daily Technical Analysis

EURGBP Keeps Declining with Rising Interest Rates - Zeal Capital Market
Graph taken from TradingView.

Moreover, on the daily timeframe, EURGBP is firmly breaking the support at 0.83830. Yesterday, EG is closed with a small bullish candle that might to wick-fill and retest the key level area that has been broken before.

Trading idea for EUR/GBP

EURGBP Keeps Declining with Rising Interest Rates - Zeal Capital Market
Graph taken from TradingView.

On the 4-hour timeframe, we can draw a down-trendline to connect a high to lower highs. It shows us a confluence with the key level that has been broken. The trading idea is:

Order: Sell Limit
Entry: 0.83850
Stop Loss: 0.84245
Target 1: 0.83550 (50% + BE)
Target 2: 0.83300 (25%)
Target 3: 0.82970 (25%)
Risk total: 1-2% Equity (Medium Risk Setup)
Reason: Bearish structure, break and retest, confluence key level and down-trendline.

ZFX Analyst’s Predictions

The BoE is the first big central bank in the world that increase interest rates after Covid-19. This decision seems to have been rewarded by investors. Moreover, the inflation gap between euro and the UK could be a reason for this pair to move even lower. So, from the technical and fundamental analysis, we can confirm that this pair is in a serious downtrend, at least until H1 of 2022. We might see EURGBP to touch the monthly support, or even breaking it to reach 200 MA on the monthly timeframe at 0.82000.

Risk Warning: The above content is for reference only, and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations carried out in accordance with this article. Please be firm in your thinking and do the corresponding risk control.

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