Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst 

In a surprising move, the Bank of England (BoE) chose to keep its benchmark interest rate unchanged at 5.25%, defying expectations of a 25 basis points hike. This unexpected decision sent shockwaves through the currency market, causing the British Pound to plummet. As a result, the EURGBP pair surged to new two-month highs, approaching the 0.8700 level. 

The BoE’s cautious stance was prompted by the latest inflation data, which showed a slight easing in consumer price growth. The Monetary Policy Committee voted 5-4 in favour of maintaining rates, with some members highlighting the need for further tightening if inflation persists. 

Meanwhile, the Euro’s resilience against a strong US Dollar, driven by higher Euro Zone bond yields, is also contributing to EURGBP’s ascent. As the BoE’s surprise move continues to reverberate, traders are closely watching the evolving dynamics of this currency pair. 

Technical 

In the 4-hour chart, the EURGBP currency pair stands at a current price of 0.86775, displaying a noteworthy ascent after breaking free from an ascending channel trading pattern. This breakout suggests an inclination towards bullish sentiment. 

Price action is convincingly positioned above key exponential moving averages (EMAs). The 20-EMA has recently crossed above both the 50-EMA and the 100-EMA, reinforcing the bullish outlook. This alignment of EMAs typically signifies strengthening upward momentum. Further affirming the bullish stance, the Relative Strength Index (RSI) is at 72.82, indicating robust buying interest. The RSI-based moving average (MA) stands at 62.49, reflecting a sustained uptrend. 

Therefore, short-term trading opportunities could exist towards the 0.86925 resistance level should the upward trajectory be sustained. A successful breach of this level may pave the way for further gains, targeting the 0.87196 resistance level.  

However, should the price action be successful in the attempt to sustain a move below the daily pivot point and breach the channel, short-term trading opportunities might open up towards the initial support at 0.86572, with further downside potential at the 0.86312 and 0.86065 support levels. 

Summary 

The EURGBP currency pair is likely to remain volatile in the coming weeks as investors assess the outlook for the UK economy and the BoE’s monetary policy stance.  

However, the current trend is in favour of the Euro, and the EURGBP currency pair could test further highs in the near term, with the 0.86925 and 0.87196 resistance levels likely to act as levels of interest. 

Sources: TradingView, Trading Economics, Bank Of England, Reuters, Dow Jones Newswire, MT Newswire.