EUR/GBP: forecast ahead of the BOE and ECB decisions

The EUR/GBP has been trading in a bearish tone for over a year now, looking for a bottom. Is this the week that marks a bottom, as the Bank of England (BOE) and the European Central Bank (ECB) announce their monetary policy decisions today?

An important week for EUR/GBP traders began 3 days ago. The BOE and ECB will present their monetary policy decisions today, giving speculators the opportunity to trade the EUR/GBP cross.

Price action has gone nowhere this year. With more than a month of trading already behind us, the EUR/GBP cross has barely moved.

Specifically, last month, it traded in such a range of about 100 pips points, extremely narrow by any standards. However, the market may only be waiting for more guidance from the two central banks now that the monetary policy stimulus has been removed.

EUR/GBP at Dynamic Support

The technical picture looks bearish, although the market has found some support on the lower edge of the bearish channel. At this point, it is difficult to take a position on EUR/GBP for at least two reasons.

First, dynamic support may trigger a rebound from current levels. Thus, bears are cautious about opening a new position.

Second, bulls have no reason to buy here because even a bounce from a cut of hundreds of pips would still cap the market inside the bearish channel. Therefore, the wisest thing to do here is to wait for the two central banks to say what they have to say and then trade a break above the upper edge of the channel or sell against the same resistance.

Market participants expect divergent policies

While the technical picture looks bearish, so does the fundamental picture. On the one hand, the BOE is expected to raise the interest rate again after the last rate hike in December. On the other hand, the ECB will instead insist on its accommodative card, putting more pressure on the common currency.

All in all, this is a big week for the EUR/GBP cross. Traders should remember that the market has already priced in most of the central bank results, so a big move in the exchange rate could be triggered if either central bank delivers a surprise.