In today’s article, we want to take a closer look at EURGBP, which could see some interesting moves in the second half of the week.
Today we have the Fed rate decision, but for the British pound the more important event will be tomorrow’s Bank of England meeting. No change in rates is expected, but UK inflation remains a problem after CPI increased from 2.9% to 3.1%. So even if the BoE keeps rates unchanged, the voting split and comments about future policy could still cause some volatility in sterling.
Looking at EURGBP from an Elliott Wave perspective, the pair is now in recovery mode, and it looks like a bullish reversal could be developing after the previous sharp decline.
That decline came out of a triangle, and we know that moves out of triangles are usually final within a sequence. This means that the recent sell-off could have completed a larger bearish cycle.
We can also see some nice stabilization around the lower trend line of the corrective channel. More importantly, the latest rebound is quite strong, while the recent pullback towards 0.8536 looks corrective on the lower time frame. This is another sign that bulls could be coming back.
If that’s the case, EURGBP could continue higher towards the upper side of the downward channel, with the first important resistance around 0.8630. Ideally, we will eventually see a break above this area and out of the channel, which would provide stronger confirmation that a larger bullish reversal is underway.
For now, the structure is turning more constructive, but tomorrow’s Bank of England decision could be an important catalyst for the next move.
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