The EUR/GBP pair has struggled to climb above 0.8700, currently trading at 0.8670 after recovering from 0.8645. Despite several attempts, it couldn’t break through the 0.8690 resistance level, with technical indicators showing a decrease in momentum. In January, the Eurozone Sentix Economic Confidence Index rose to -1.8 from -6.2 in December, marking its best result since July. This indicates a more positive sentiment about the economic outlook in the Eurozone.

Geopolitical Tensions Impacting Euro Gains

Tensions around the globe are continuing to hold back Euro gains. In Iran, harsh crackdowns on protests have sparked speculation about potential involvement from the US or Israel. Meanwhile, the UK has announced a $268 million investment that might relate to sending troops to Ukraine. The UK is also expecting a weak employment report, which could influence expectations for future easing by the Bank of England (BoE). Reports show that UK employers significantly reduced hiring plans in December due to rising costs and budget constraints. The Sentix Investor Confidence index surveys 1,600 financial analysts every month. It assesses current economic conditions and expectations for the next six months, with higher scores usually being favorable for the Eurozone and the Euro. A year ago, the EUR/GBP pair also stalled just under the 0.8700 resistance level. In January 2025, improvements in the Eurozone Sentix index were countered by geopolitical uncertainties and concerns surrounding the UK economy. This period of uncertainty led to narrow trading ranges in the following months.

Changing Economic Outlooks Affecting EUR/GBP

Throughout 2025, fears of a UK economic slowdown led the BoE to take a more cautious approach compared to the European Central Bank (ECB). This difference helped the EUR/GBP pair rise towards 0.8800 by the third quarter of last year. However, this upward trend has since slowed as economic outlooks have begun to change once more. As of January 2026, the situation seems to be shifting again, creating new opportunities. Recent data shows that UK core inflation unexpectedly rose to 3.1% in December, while the unemployment rate dropped to 4.0%, suggesting the BoE may need to adopt a more aggressive stance. Conversely, the January 2026 Eurozone Sentix confidence index fell to -2.5, indicating a decline in economic optimism there. This widening disparity suggests that the EUR/GBP could weaken in the coming weeks. Traders might consider buying put options with a strike price around 0.8700 to profit from a possible drop back towards the 2025 lows. This approach offers defined risk, limited to the premium paid for the option. For those anticipating more volatility and uncertainty, selling out-of-the-money call options above the 0.8850 resistance level could be a wise way to earn premium. This strategy is based on the belief that any increases will be capped by sluggish economic data from the Eurozone. The main risk here would be an unexpected positive shift in the Eurozone economy that could lead to a sharp rise. Create your live VT Markets account and start trading now.

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