The EUR to GBP exchange rate fell the most in yesterday’s trading since February 13 as the BOE hinted that it is not keen to cut rates. EURGBP dropped from its intraday high of 0.8743 to close at 0.8649. By the end of the New York session close, the currency pair was down 66 pips for the day.
Incoming BOE Governor Andrew Bailey spoke in Parliament yesterday. He remarked that the central bank will need to properly assess more evidence before easing monetary policy further. This was bullish for the British pound because it suggests that the BOE is not as dovish in response to the coronavirus outbreak as its counterparts (RBA, Fed, HKMA, and BOC).
The euro was no match for the pound’s strength. There were rumors yesterday that the ECB convened to discuss options about easing. These speculations were enough to fuel a rally on the DAX Index but they had an opposite effect on the EUR to GBP exchange rate. An easier monetary policy tends to be bearish for a currency because a higher level of money supply is seen to lower its value.
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EUR to GBP Outlook
On the daily time frame, we can see that EURGBP has recently completed a double bottom pattern. This is characterized by the market bouncing off a support level twice. In the case of EURGBP, that support level is the 0.8300 handle.
In forex trading, this chart pattern is considered as a bullish reversal pattern. Therefore, it suggests that the recent drop on the currency pair is nothing more than just a retracement. If there are enough buyers in the market, we could see the EUR to GBP exchange rate rally to 0.9000 or find support around 0.8560. This latter offers a confluence of support because it coincides with the currency pair’s previous highs and the 38.2% Fib level (when you draw the Fibonacci retracement tool from the low of February 18 to the high of March 2).
On the other hand, a strong close below 0.8560 could mean that the EUR to GBP exchange rate may soon drop back to 0.8300.
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