- EUR/GBP weakens after several ECB officials talk up the possibility of an early rate cut.
- Francois Villeroy de Galua and Joachim Nagel talk of spring rate cut, putting April back on the table.
- The technical outlook turns more bearish as price sinks back down towards February’s lows.
The Euro (EUR) is sinking, trading in the 0.8510s against the Pound Sterling (GBP) on Friday, after two leading members of the European Central Bank’s (ECB) Governing Council (GC) voiced approval for a spring rate cut.
Their dovish views clash with the more cautious stance of the ECB President Christine Lagarde, who said on Thursday, that June would be the next key date for reviewing policy on interest rates.
Francois Villeroy de Galau, Governor of the Bank of France and GC member, said a rate cut in spring was now “very likely” on Friday, adding, “spring goes from April to June.”
His ECB colleague, Bundesbank President Joachim Nagel, said “The probability is increasing that we could see an interest-rate cut before the summer break,” adding, “This will be data dependent, but the prospects have brightened.” According to a report on Poundsterlinglive.com.
The comments led to broad based weakness for the Euro as lower interest rates reduce the attractiveness of a currency as a place for foreign investors to park their capital.
EUR/GBP’s long-term technical outlook is sideways with a slight bearish bias in the intermediate and short-term.
Given the overall bearish theme of the charts the price will probably continue sinking to the key support level at 0.8493. A break below that would turn the picture much more bearish.
Euro vs Pound Sterling: Daily chart
There are some signs of a possible recovery, however, if price stabilizes.
The Moving Average Convergence/ Divergence (MACD) is converging bullishly with price action suggesting the downtrend may be losing momentum. .
An Inverse Head and Shoulders pattern could be forming, although the chances are diminishing as the market continues falling. For confirmation of the pattern, price would have to break above what is known as “the neckline” which is drawn as a resistance line at the highs. On EUR/GBP the neckline is at 0.8750. Such a break could be followed by a rise of either the same length as the height of the pattern extrapolated higher, or a Fibonacci 61.8%.
Given the confluence of resistance from the 100 and 200-day Simple Moving Averages (SMA) at around 0.8615, as well as resistance from the trendline nearby, this zone provides a potential conservative estimate for the pattern.