Until last Thursday, the EURGBP pair was at the lows below 0.86 since August. However, after the ECB and the BoE meetings, the euro began to strengthen rapidly against the pound sterling, and this tendency remains. Let’s see if there is any potential for the continued growth of EURGBP.
The main reason for the euro’s growth against the pound was the change in expectations on the monetary policy of financial regulators next year. After the meeting on December 15 some ECB officials advocated for further rate hikes and quantitative tightening. It seems that gas storage filled by more than 80% give European policymakers confidence that the energy crisis won’t be intensified, and the economy will manage to avoid a recession.
On the other hand, BoE officials are more pessimistic. 2 out of 9 voting members of the British regulator were against raising rates already at December’s meeting, and next year, they might be joined by other members as well. Especially since most national economic surveys already confirm a recession in the current quarter, with prospects of a worsening situation in 2023.
On the EURGBP chart, a sharp rise on December 15 led to the formation of a flag pattern, after which the price is prone to continue its initial movement. The nearest growth targets will be November’s highs slightly below 0.883 and October’s highs just above 0.885. Analysts at major investment firms forecast a price hike as high as 0.9 over the following year.
Currently, the level of 0.871 may be marked as the main support. For greater reliability, a decrease in quotations to this level may be awaited, and positions may be opened there with the expectation of renewed growth. The RSI is already close to the overbought zone, thereby increasing the probability of a local correction, which may be followed by a renewed rise.
The following trading strategies may be offered:
1) Buy EURGBP for the current price. Take profit 1 – 0.883. Take profit 2 – 0.885. Stop loss – 0.875.
2) Buy EURGBP on the decline to 0,871. Take profit 1 – 0.879. Take profit 2 – 0.885. Stop loss – 0.866.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.