Euro-Pound, Daily

  • Forex Analysis

Although euro-dollar made some gains last week, the common currency remains close to 2023’s lows against the pound . One of the main reasons for that is the Bank of England’s determination to tackle inflation, which at 10.1% remains much higher than any other major economy. Although it seems likely that the European Central Bank will need to tighten further this summer, the Bank of England will still probably go higher. The Bank of England’s expectations for inflation have hardened in recent months, with a return to the target range not predicted until the first half of next year.

On the chart, £0.86 seems to be a very strong area which might drive another bounce if tested this week, barring any major surprise from the data. If British inflation declines by 2%, as currently expected, the euro could have room to rise to the weekly Fibonacci fan’s 50% above £0.87, or possibly higher in the short term.

However, in the event of a higher British inflation release compared to the consensus, there might be a retest lower, and maybe even a short-term breakout from there. Traditionally, it would make sense for traders to avoid large positions until a major release like Wednesday’s shows a clear result.

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