EUR/GBP traded with a firmer tone on Monday, pushing up towards the 0.8645 area and testing one-week highs close to 0.8644. Market sentiment improved after reports of a US–Iran memorandum of understanding to end the war in Iran and reopen the Strait of Hormuz, which helped drive oil to its lowest level in three months and supported the Euro across the board. Separately, hawkish remarks from ECB policymakers Martins Kazaks and Joachim Nagel referenced ongoing inflationary pressures. In the UK, the BoE is due to announce its policy decision later this week, with attention on the vote split and minutes for guidance.

Technically, the pair held just above 0.8640, sitting under the top of last week’s range, while price action pointed to an emerging base around 0.8620. On a 4-hour view, RSI was nearing 60 and MACD had moved into positive territory, consistent with a modest recovery bias. Resistance levels include the June 11 high at 0.8644, then June 4–5 highs between 0.8655 and 0.8660, with late May near 0.8680 beyond; support is around 0.8620, ahead of the year-to-date low at 0.8612.

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Divergence In Central Bank Policy Supports EUR/GBP Bulls

We see EUR/GBP bulls testing the 0.8644 resistance level, driven by a growing divergence in monetary policy expectations. The core of this trade is the belief that the European Central Bank will remain more hawkish than the Bank of England. We are positioning for a potential breakout above this key level in the near future.

Support for the Euro comes from ECB officials expressing ongoing concern about inflation, which recent data showed remains sticky at 2.3% in the Eurozone for May. Historically, when the ECB has signaled a stronger commitment to fighting inflation than its peers, the Euro has strengthened. This fuels our expectation that the ECB will be slower to cut rates, providing a solid foundation for the currency.

Conversely, with UK inflation cooling to 2.1% and wage growth moderating, the Bank of England is under less pressure to maintain a restrictive stance. The market is pricing in a higher probability of a BoE rate cut before the end of the year compared to the ECB. This policy difference is the primary catalyst we see driving EUR/GBP higher.

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Technical Levels And Trading Strategies

The technical chart shows that a floor is forming around the 0.8620 area, which has provided strong support on multiple occasions over the past month. We interpret the current price action as a modest recovery with the potential to gain momentum. Any dips toward this support should be seen as an opportunity to build a bullish position.

Given this view, we are looking at buying call options to play a potential breakout. A one-month call option with a strike price of 0.8650 offers a defined-risk way to profit if the pair pushes through resistance towards the 0.8680 level. This strategy benefits from an increase in price without exposing us to unlimited downside.

An alternative strategy is to sell put options with a strike price below the key support, such as at 0.8600. This generates income from the premium collected and is a trade we would place based on our confidence that a bottom has formed. This approach is profitable if EUR/GBP stays flat or moves higher, aligning with the view of limited downside.