EUR/GBP: price forecast after last week's BOE disappointment

The Bank of England disappointed market prices last week. It failed to deliver the rate adjustment that the markets were expecting and the pound collapsed. What's next for the EUR/GBP pair?

One of the main events for traders last week was the Bank of England's decision. The market was expecting the central bank to make the first post-pandemic rate adjustment, as it had announced.

To everyone's surprise, the central bank kept its monetary policy stable. As a result, sterling has collapsed across the board, with the EUR/GBP recently jumping two hundred pips (i.e. two big numbers).

Yet the technical picture remains bleak for the EUR/GBP cross. After the initial disappointment, traders have sold the cross again, on the renewed strength of the pound and a weak euro.

What does the technical picture say?
The daily calendar reveals a bearish picture for the EUR/GBP cross this year. The price continued to make new lows and higher lows, a typical formation during bearish trends.

Furthermore, the recent rebound caused by the disappointing Bank of England markets appears to be the last segment of a contracting triangle. As such, expectations are that a new lower low is in the cards, with a move below 0.84 possible.

To achieve this, the price must first close below the level at which the contracting triangle began. Then, on a daily close below the BD trendline, the bias remains bearish as such a triangle suggests more downside once the price breaks above the BD trendline. Therefore, from a technical point of view, the bias remains bullish for the coming period.

Why did the market expect a Bank of England hike?
The Bank of England suggested in the September minutes that a rate hike was possible even before the end of the current UK government bond purchase programme. In addition, the governor stated in last month's G30 conference call that the Bank will have to act to stop inflation rising.

As a result, the market started to build in a rate hike. But the bank failed to deliver, leaving monetary policy unchanged and causing a mini-crash in sterling.