Euro Rebounds Against Pound but Downtrend Still Dominates

Key Moments

Fundamental Backdrop Pressures the Euro

The Euro (EUR) is edging higher against the British Pound (GBP) on Thursday, but the prevailing downward bias remains in place after a drop of about 0.8% over the last three days. EUR/GBP has recovered to around 0.8545 after briefly touching the 0.8530 support area. The latest uptick appears corrective in nature, as buying interest has been modest and follow-through momentum has been limited.

The single currency has faced a difficult week amid rising Oil prices and an increase in France’s borrowing costs. France’s government debt has climbed to its highest level since 1946, fueling concerns about a potential credit crunch. In addition, remarks from European Central Bank President Christine Lagarde have added to the pressure on the Euro. Lagarde stated that the bank views “a measured response as appropriate to keep inflation in check,” at a time when the Bank of England (BoE) is signaling the possibility of further monetary tightening.

Analysts at Rabobank caution that “while higher short-term interest rates are a currency positive factor, we see little room for sustainable gains for the pound from this front given that more than 100 bps of policy tightening is priced in on a 12-month view.” They add that “it is more likely that GBP could soften as rate hike risks are reined in.”

Rabobank also points to the significance of the October 28 budget for UK assets. According to the bank, “If the current Labour Party leadership team maintains its promise to respect the former Chancellor’s fiscal rules, there may be room for a post-budget relief rally in the pound,” while warning that “given the PM’s wish list, this may suggest more tax rises which have negative growth connotations.”

Technical Outlook: Recovery Faces Layered Resistance

EUR/GBP is trading near 0.8543, consolidating after a sharp reversal earlier in the week. Intraday Relative Strength Indexes (RSIs) have reached oversold territory, opening the door to a modest corrective bounce. On the 4-hour chart, however, momentum indicators continue to signal a bearish setup. The RSI is hovering just above the 30 threshold that typically delineates oversold conditions, while the Moving Average Convergence Divergence (MACD) line remains marginally below zero, underscoring that sellers still have the upper hand.

On the upside, the first technical barrier is located around 0.8550, a former support zone defined by the August 28 and September 14 lows that may now function as resistance. Above that, the broken trendline in the 0.8565 area represents the next hurdle. A clear break above both 0.8550 and 0.8565 would be required to alleviate immediate bearish pressure and refocus attention on the late-September peak near 0.8585, recorded on September 29.

On the downside, a move below the 0.8530 region – which corresponds to the lows from July 24 and August 12 – would expose the July 17 high around 0.8515 as the next potential objective. Further weakness could then bring the July 10 and July 21 lows into view, located in the 0.8480-0.8490 band.

Key EUR/GBP Technical Levels

Euro Performance Snapshot

The article notes that Euro price changes against major currencies are summarized in a daily performance table, in which the Euro is shown as having been strongest versus the Japanese Yen. The accompanying heat map illustrates percentage changes among major currency pairs, with the base currency listed in the left-hand column and the quote currency along the top row. For instance, selecting the Euro on the vertical axis and the US Dollar on the horizontal axis displays the percentage move of EUR (base) against USD (quote).