EURGBP Price Analysis: Holds above 0.8750, within a known range

• EURGBP finds decent support ahead of the 0.8700 level and regains positive traction on Wednesday.
• The recent range-bound price action constitutes the formation of a rectangular pattern on the daily chart.
• The technical setup favors the bulls and supports the prospects for an eventual breakout.

The EURGBP attracts new buying on Wednesday and reverses some of the previous day’s decline to strong horizontal support at 0.8710-0.8700. The cross is holding on to its modest intraday gains during the early part of the European session and is currently trading around the 08750 area.

The common currency’s relatively low yield is due to reports that the missile that hit Poland may have been fired by Ukrainian forces at a Russian missile. This, coupled with further dollar selling, boosts the Euro and helps the EURGBP to regain positive traction. Sterling, meanwhile, is supported by higher-than-expected UK consumer inflation figures, increasing pressure on the Bank of England to further raise borrowing costs.

However, concerns about a deeper economic downturn act as a headwind for the British pound and support the prospects for a further intraday appreciation move for the EURGBP. However, investors may refrain from taking aggressive positions and prefer to stay out ahead of the Bank of England’s monetary policy report hearings on Wednesday. This, in turn, warrants some caution on the part of the bulls before positioning for an extension of the recent rally from the 200 day EMA.

Even from a technical perspective, the EURGBP has been oscillating in a known range for the past two weeks or so. This points to indecision about the next directional move and constitutes the formation of a rectangle. Meanwhile, bullish oscillators on the daily chart support the prospects for an eventual breakout. That being said, it will still be prudent to wait for sustained strength beyond the range barrier before making further bullish bets.

Such a barrier is set near the 0.8820-0.8825 zone, above which the EURGBP is likely to accelerate momentum towards the 0.8850-0.8860 resistance zone. Some follow-through buying should allow the bulls to recapture the 0.8900 level. The ensuing positive move has the potential to lift EURGBP losses towards intermediate resistance around 0.8945-0.8950 on the way to the next major barrier near 0.9000.

EURGBP daily chart

EUR/GBP key levels to watch