EUR/GBP faces pressure as the Euro weakens against a robust British Pound following the UK Autumn Budget. Even with forecasts of a Bank of England interest rate cut on December 18, Sterling remains strong. Currently, EUR/GBP is trading around 0.8729, marking its third consecutive weekly decline. The pair has dropped from a November high of 0.8865 and is now below the 21-day and 50-day Simple Moving Averages (SMAs), indicating a ongoing downward trend.

Immediate Support and Resistance Levels

EUR/GBP stays above the 100-day SMA at 0.8711, which acts as immediate support. A dip below this level could push the exchange rate down to the 0.8670-0.8650 range. Momentum indicators like the MACD histogram and RSI show a bearish trend but are still above oversold levels. On the upside, the 50-day SMA at 0.8751 serves as the first resistance point, followed by the 21-day SMA at 0.8787. If these levels are surpassed, bullish momentum could be reignited, targeting the 0.8865 high. In the currency markets, the British Pound is performing best against the Japanese Yen. The heat map displays percentage changes of major currencies, showing the Pound gaining against the Dollar, Euro, and Yen. With the ongoing downward pressure on EUR/GBP, we focus on this trend as we approach the mid-December Bank of England meeting. The Euro is being sold off due to a significant policy gap, where the European Central Bank is signaling more aggressive easing compared to the BoE. The strength of the Pound indicates that the market has already factored in the anticipated BoE rate cut.

Investment Strategies for Bearish Outlook

Recent data reinforces the attraction of the Pound. November’s UK inflation data at 3.1% remains above the BoE’s 2% target, limiting their options for further cuts. In contrast, the Eurozone’s November flash CPI estimate of 2.5% allows for easier rate cuts by the ECB, which weighs on the Euro. For those expecting a further decline, buying put options expiring in January 2026 could be wise. A strike price near 0.8650 would take advantage of a break below the key 0.8711 support level, a scenario that appears likely. This strategy minimizes risk while benefiting from continued downward movement after the BoE’s decision. For a more cautious approach, consider a bear put spread. By purchasing a 0.8700 put and selling a 0.8650 put simultaneously, traders can reduce the upfront costs. This is suitable if a modest decline toward the 0.8650-0.8670 area is anticipated rather than a sharp drop. It’s crucial to monitor the 100-day moving average at 0.8711. If this support level holds, selling out-of-the-money call options or setting up a bear call spread with a strike above the 0.8787 resistance could be effective for collecting premium. This strategy would benefit from the price either falling or stabilizing in the upcoming weeks. Historically, the BoE’s assertive response to high inflation in 2023 and 2024 has bolstered Sterling’s credibility, an advantage the Euro currently lacks. This context supports the view of a stronger Pound, even as the central bank considers rate cuts. The market seems to perceive the UK’s economic foundation as more robust compared to the Eurozone at this moment. Create your live VT Markets account and start trading now.

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