EUR/GBP – Key Levels Ahead of the BOE Decision

Summary:

EUR/GBP sits at crossroads ahead of the Bank of England's monetary policy decision. The pair formed an inverse head and shoulders but bears may win.

The EUR/GBP is at an inflection point ahead of the Bank of England (BOE)’s decision later in the trading day. The market participants expect the BOE to announce the tapering of its quantitative easing program, and so the event should generate a bullish reaction for the British pound.

However, it may very well be that the market already priced in the BOE’s communique. The thing is that the bank was very careful to communicate its intentions, and thus the decision may be priced in.

The BOE currently buys assets worth GBP4 billion a month. A reduction in the buying amount means tapering if you want, a slowdown in the easing process.

In normal times, when a central bank signals a slowdown in the easy monetary policy, that is a hawkish statement and is bullish for the currency. But these are not normal times, as markets are dependent on the unconventional monetary policies deployed due to the COVID-19 pandemic.

EUR/GBP Technical Analysis

The EUR/GBP technical picture shows some contradicting signals. On the one hand, the pair dropped from a massive bearish triangle by the time Brexit ended last December. On the other hand, it appears to have formed an inverse head and shoulders pattern, and the measured move points to 0.89.

Bears may want to wait for the market to drop below the lowest point in the inverse head and shoulders formation before going short. The stop-loss order should be placed a the neckline, while the target should be found using a 1:2 risk-reward ratio.