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EUR/GBP Crash Hits Key Support as Pound Sterling Pulls Back

EURUSD Forecast
EURUSD Forecast

The EUR/GBP price had a volatile performance in September. The pair managed to move from a low of 0.8567 to a high of 0.9283. It then retreated to 0.8827, where it started October at. In total, the pair has risen by more than 5% in 2022 as the sterling comes under intense pressure.

EU and UK challenges remain

The UK and the European Union have come under intense pressure in the past few months as the cost of doing business rises. For example, the UK announced a new set of fiscal policies that most analysts believe will lead to more budget deficits. 

As a result, the Bank of England (BoE) announced a new plan to buy billions worth of government bonds in a bid to stabilize the market. At the same time, analysts expect that the BoE will hike interest rates even as chances of a recession increase. The UK has also announced more plans to subsidize energy in the country.

The EUR/GBP price also reacted to the policy statements by the European Central Bank (ECB). Like other major central banks, the ECB decided to hike interest rates by 0.75% in September. In a statement last week, Christine Lagarde hinted that the bank will continue hiking interest rates in its final meetings of the year.

The biggest risk for the EU and UK is that the war in Ukraine is not ending any time soon. Russia has already annexed four key locations in Ukraine. As winter approaches, the energy situation is substantially challenging for Europe. As such, there is a high likelihood that the economies will sink into a recession soon.

EUR/GBP forecast

The four-hour chart shows that the EUR/GBP price has been in a strong bearish trend in the past few weeks. In this period, it has managed to fall from a high of 0.9277 to 0.8827. It has moved slightly below the short and long-term moving averages while the MACD has moved below the neutral point. The price is slightly above the ascending trendline shown in green.

Therefore, the outlook for the pair is still bearish. If this happens, the next key support level to watch will be at 0.8570, which was the lowest level on September 6. The stop-loss for this trade will be at 0.8900. For a live a EUR/GBP forecast, consider subscribing to our S&R indicator, which has a 87% success rate.