The EURGBP pair is rallying sharply as the British pound slump on the foreign exchange market due to new restrictions on the UK economy, newly imposed by the Johnson government last week.
Meanwhile, the euro has been holding up better than other currencies and has been trading towards a six-month high again the British pound. However, the eurozone also has its own lockdown issues.
The next big move in EURGBP pair is expected to come after the Bank of England rate decision this week. It should be noted that the British economy also has some big economic releases this week.
The expectation is low that the Bank of England will hike rates this week, and most experts believe that the central will wait until early next year before raising borrowing costs.
This is later than previously expected, as economists note that further information on the economic impact of the new Omicron coronavirus variant is likely to be needed by the central before a decision is made on hiking rates.
In a recent Reuters poll, a slim majority of economists expected a rise from 0.10% to 0.25% this week. But since then BoE policymakers Saunders who voted for an interest rate hike last month said he wanted more details about the new variant before deciding how to vote this month. This is probably bullish for the EURGBP pair.
The ActivTrader platform shows that bearish sentiment is ramping up, with some 63 percent of traders still expecting more downside in the EURGBP pair, despite the recent price ramp.
One-way sentiment skews are rarely correct, so the current bearish sentiment is worrying. With traders turn bearish towards this euro cross, I have concerns that the rally in the single currency against the pound is only set to worsen.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that the EURGBP pair is currently technically bullish, over the short-term while the price trades above the 0.8480 support level.
Lower time frame analysis currently shows the EURGBP pair has broken back inside a large triangle pattern. Sustained gains above the 0.8500 level are likely to prompt more gains towards the top of the channel, around the 0.8650 level.
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EURGBP Medium-term Technical Analysis
The daily time frame shows that the EURGBP pair has suffered a large technical bounce from close to the bottom of a large expanding broadening wedge pattern.
Following the downside failure, the technical picture is still confusing, and I predict that the EURUSD pair is likely to trade in a range between the 0.8700 and 0.8200 level. Much above the 0.8750 level, and the bullish trend could turbo charge in the EURGBP pair.
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