EUR/GBP Price Analysis: Downside seems likely as Pound strengthens on BoE Bailey’s hawkish guidance
- EUR/GBP is looking vulnerable above 0.8770 amid BoE Bailey’s hawkish guidance.
- The European Banking Authority cited that rising interest rates by the ECB are weighing on financial markets.
- A confident breakdown of the H&S pattern will result in downside momentum.
The EUR/GBP pair looks vulnerable near day’s low around 0.8770 in the early Asian session. The cross is expected to deliver sheer weakness as hawkish guidance from Bank of England (BoE) Governor Andrew Bailey has underpinned the Pound Sterling. BoE Bailey reiterated on Monday that the central bank would continue to hike rates further if United Kingdom’s inflation remains persistent.
Financial instability inspired by the collapse of three mid-size United States banks and Swiss-second largest Credit Suisse is crossing boundaries. Jose Manuel Campa, Chairman of the European Banking Authority (EBA), warned in the German Handelsblatt newspaper, "The risks in the financial system remain very high." He further added, “Rising interest rates continued to weigh on financial markets”.
Going forward, the Euro will dance to the tunes of preliminary German Harmonized Index of Consumer Prices (HICP) (March) data, which will release on Thursday. According to the consensus, the annual German HICP will soften firmly to 7.5% from the former release of 9.3%.
EUR/GBP is on the verge of delivering a breakdown of the Head and Shoulder chart pattern formed on an hourly scale. The H&S chart pattern indicates a prolonged consolidation in which institutional investors transfer inventory to retail participants. The neckline of the chart pattern is plotted from March 22 low at 0.8772.
The 20-period Exponential Moving Average (EMA) at 0.8785 is acting as a barricade for the Euro bulls.
Meanwhile, the Relative Strength Index (RSI) (14) has slipped into the bearish range of 20.00-40.00. The absence of divergence and oversold signals indicate more weakness ahead.
A confident downside move below March 22 low at 0.8772 would deliver a breakdown of the H&S pattern and will drag the cross toward March 17 low at 0.8745 followed by March 15 low at 0.8718.
Alternatively, a decisive break above March 24 high at 0.8827 will drive the cross toward March 23 high at 0.8865 and the round-level resistance at 0.8900.
EUR/GBP hourly chart