The Euro has lost recent gains, falling below 0.8700 against the Pound after softer UK inflation data. Since early October, the EUR/GBP has traded within a 70-pip range. In September, UK inflation rose 3.8% year-on-year, lower than the anticipated 4.0%. This has led to speculation about a possible rate cut by the Bank of England, putting pressure on the Pound.

Technical Analysis

Currently, the EUR/GBP is creating a symmetrical wedge pattern around the 0.8700 level, which may indicate a downward trend. Support levels are between 0.8670 and the October 8 low of 0.8655. If it breaks below these, we could see it drop to the September lows of 0.8635, with a target of 0.8620. Resistance is located between the triangle’s top at 0.8715 and the 0.8730 area, which has limited gains since early October. Breaking through these levels could propel the pair to the yearly high of 0.8750. A heat map indicates that the Euro is stronger against the Japanese Yen today. The EUR/GBP remains close to 0.8700, and if support levels break, further downward movements are likely. The UK inflation data, which came in lower than expected, has significantly changed our focus. The 3.8% reading, under the predicted 4.0%, has led to concerns that the Bank of England may feel pressure to cut rates sooner than the European Central Bank. This divergence in policy may strengthen the Pound against the Euro in the weeks ahead.

Market Strategy

We are closely monitoring the symmetrical wedge pattern around the 0.8700 level. Given the current fundamentals, this appears to be a bearish continuation pattern that may lead to a downward breakout. A decisive move below the 0.8670 support would signal us to increase short positions. For those wanting to take advantage of this potential move, buying put options with a strike price around 0.8650 could be an effective strategy. This allows for downside exposure while limiting the maximum loss if the wedge breaks upward. We see a target for the pattern break at 0.8620, a level not reached since August 2025. On the other hand, the resistance at 0.8730 has consistently acted as a strong barrier throughout October. Selling out-of-the-money call options above the yearly high of 0.8750 could be a smart way to collect premium. This strategy benefits from both a decrease in the pair and continuing range-bound trading. Additionally, recent data from the Office for National Statistics revealed that UK wage growth also slowed to 5.2% in the three months to August 2025, reducing pressure on the Bank of England. Futures markets now suggest a 65% likelihood of a rate cut by the BoE by March 2026. In contrast, persistent Eurozone core inflation at 3.1% reflects only a 20% chance of an ECB cut during the same timeframe. This situation resembles what we observed in late 2023 when markets adjusted for the end of the global hiking cycle, causing significant currency shifts. The critical difference now is the growing divergence between UK and Eurozone monetary policies. The heat map showing the Euro’s strength against the Yen only distracts from the main EUR/GBP narrative. Create your live VT Markets account and start trading now.

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