FxWirePro: EUR/GBP consolidates previous session's whopping gains, BoE-ECB policy divergence to fuel gains

Chart - Courtesy Trading View 

EUR/GBP closed a whopping 1.51% higher on Tuesday after BoE and ECB policy announcements triggered strong buying interest.

The ECB announced a 50 bps rate hike as widely expected, but the Quantitative Tightening (QT) announcement surprised the markets.

The central bank said it will start QT in March 2023 at a €15 billion pace, and will run through Q2 and be set on an ongoing basis. 

The ECB updated its inflation forecasts for 2024 and 2025 to hit 3.4% and 2.3%, respectively and added that rates would still need to rise “significantly further.”

On the other side, the Bank of England hiked rates by 50 bps as expected, but a split in the votes for further rate increases spooked GBP bulls.

The decision was approved with a 7-2 split, with BoE members Tenreyro and Dhingra opting for a no change.

Lack of of surety over further policy tightening has put immense pressure on the Pound Sterling, pushed EUR/GBP higher overnight.

Looking forward, the release of the United Kingdom Retail Sales data will be of utmost importance to determine forward guidance.

Analysts expect UK annual Retail Sales for Nov to contract by 5.6% against a contraction of 6.1% released earlier. While the monthly data is likely to drop to 0.3% from the former release of 0.6%.

Technical Analysis:

- EUR/GBP spiked past 200-week MA, price action has broken into the daily cloud

- Momentum has turned bullish, Stochs and RSI are now biased higher

- GMMA indicator has turned bullish on the intraday charts

- Volatility is high and rising and MACD supports further upside in the pair

Major Support Levels: 0.8709 (Cloud base), 0.8687 (200-week MA)

Major Resistance Levels: 0.8770 (Upper M BB), 0.8828 (Nov high)

Summary: EUR/GBP poised to extend gains as long as pair holds above cloud base. Scope for test of fresh monthly highs above 0.88 mark.