EUR/GBP monthly chart
For the longest of time now, the pair has been caught within a 1,000 pips range over the last eight years. And that’s just the extremes in certain years. Most of the time, the pair has nestled within a much tighter range during this period. But with the over 4% decline this year, there is a chance for sellers to finally break the mould.
The pair is once again running into a test of the 0.8300 handle and has been testing waters below that in December trading. The last real attempt to break below that came back in 2022 but that was defended by the 200-month moving average (blue line) at the time. This time around, sellers have already broken below that as well as the 100-month moving average (red line). That suggests a stronger downside bias for the pair on any major technical break now.
The March 2022 low is seen at 0.8202 but a firm monthly close under 0.8300 may yet be enough to set up a platform for sellers to take a run towards the downside and break this eight-year range in the pair.
From a fundamental perspective, the conditions are also lining up accordingly – at least as we look towards the start of next year.
The ECB looks poised to keep cutting rates as the euro area economy is in the dumps. And that is not to mention the prospects of a trade conflict with the US amid Trump’s tariffs. That will keep the pressure on the ECB to stick with their current rate cut path.
As for the BOE, they are still keeping a more gradual approach. And that means some rate cuts with a pause every now and then perhaps. Inflation has come down but not as much as they’d hope and the economy isn’t exactly pushed to the brink just yet. We are seeing things slow down in 2H 2024 but policymakers are not yet thrown into the frying pan for now.
That being said, if the UK economy does face stronger headwinds next year, that might change the picture and weigh further on the pound. After all, traders are only pricing in just a little over two rate cuts by the BOE for next year currently. As such, a step up there could weigh on sterling and provide some support for EUR/GBP.
I reckon that’s the only condition that might play into a positive bounce for EUR/GBP at the moment. Otherwise with EUR/USD slated for parity, it might be tough to fight a weaker euro outlook alongside a technical downside break to start the new year. So, definitely one of the more interesting charts to watch out for in major FX as we look towards 2025.
