EURGBP – Bullish divergence ahead of BOE meeting


The EURGBP pair continues to decline since last week, when the Eurozone manufacturing PMI was confirmed at 49.8, the first contraction since June 2020, while today, the final reading of the services PMI beat expectations coming in at 51.2 compared to a consensus of 50.6. The European Central Bank (ECB) has started raising interest rates last month at 0.5%, above the 0.25% expected by the market. However, the market has been expecting less for the next rate hike. due to fears about the economic recession.

The EURUSD pair closed down almost 0.9% yesterday after Nancy Pelosi arrived in Taiwan. Pelosi, the Speaker of the US House of Representatives, created tension in the market which resulted in the US Dollar coming back up again. This was in line with the bounce in US 10-year Treasury yields that edged up from 2.52% to close at 2.76% on the meeting between Nancy Pelosi and the president of Taiwan today along with the Chinese threat of live-fire drills around the island of Taiwan.

The EURGBP pair is now struggling to move up from a two-month low, after July PMI data showed its slowest growth in a year. But compared to the Eurozone and the US, the data is stronger, and this, combined with the BOE’s expectations for another 0.5% interest rate hike on Thursday, has resulted in Pound Sterling performing well since last week. The final reading of the service sector PMI today missed expectations of 53.3 and declined to 52.6, after the manufacturing PMI was also revised lower at 52.1 from 52.2 in the first reading.

Technical view for EURGBP: Although it is still stuck in a bearish frame we are starting to see signs of a reversal with bullish divergence, meaning that if the BOE raises interest rates lower than expected, or raises interest rates with a weaker stance (as with the FED and RBA), we may see resistance testing at 0.8430. Conversely, a move below the 0.8340 low will have the next support in the year’s low at 0.82000.8250.

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Chayut Vachirathanakit

Market Analyst

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