The EURGBP pair has advanced higher after the ECB raised rates by 75 basis points last, which prompted renewed demand for the single currency from both foreign exchange traders and investors.
With further aggressive rate hikes likely from the ECB it is possible that we could start to see the euro currency outpacing the British pound. The Bank of England has to be very careful when raising rates due to the delicate housing market in the UK.
The housing market is very sensitive to rate hikes in the UK, due to the fact that many households have large mortgages and a sharp rise in rates could dent the UK economy significantly.
Currency traders could be factoring in that interest rate factor is going to be a reason to go long the euro over the British pound. It is ofcourse a fact that currency trading is largely based on interest rate differentials.
It is also a fact that the EURGBP pair is in a protracted bull trend and has been trading above its 200-day moving average, meaning that bulls are currently in control over the short and medium-term.
In terms of bullish targets, I think the 0.8800 level is a soft target, however, the technical do show a clear price path towards 0.8900, so the odds are in favour of more EURGBP upside.
The ActivTrader platform shows that bullish sentiment is rising, with some 79 percent of traders now expecting more upside in the EURGBP pair despite the recent price collapse.
Overall, this should be bearish for the EURGBP pair because traders are typically on the wrong side of the trade. Most of the time fading retail sentiment works well for trading purposes.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that the EURGBP pair is technically bullish over the short-term with the price trading slightly above its key 200-period moving average, around the 0.8550 area.
An inverted head and shoulders pattern has recently formed, and the price is now moving back to the neckline of the pattern. According to the size of the pattern a rally towards the 0.8780 level is still pending.
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EURGBP Medium-term Technical Analysis
The daily time frame shows that the EURGBP pair has recently invalidated a head and shoulders pattern. The price is now lingering close to the head of the invalidated price pattern.
According to the overall size of the invalidated price pattern the EURGBP pair could rally towards the 0.9000 resistance level. This would also fit in with the current fundamentals.
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