Key Downside Levels
Further downside levels include the lower edge of the falling channel near 0.8580. Another projected level sits around 0.8535. The euro, sterling, Bunds and Gilts are described as at or near oversold levels. The note also says they are due a bounce. The EUR/GBP cross has broken below its 200-day moving average and is now testing the key 0.8610 support level. This technical weakness suggests that the path of least resistance is lower. We should be prepared for an extension of this downtrend in the coming weeks. Given this outlook, we believe positioning for further downside is the appropriate strategy. Traders could consider buying put options with strike prices near 0.8580 or even 0.8535 to capitalize on a breakdown. These levels represent the next logical targets if the 0.8610 support fails to hold.Fundamental Backdrop
This bearish view is reinforced by fundamental factors, as recent data from early 2026 shows UK inflation remaining stubbornly above target at 2.8%, while Eurozone inflation has cooled to 2.1%. This divergence suggests the Bank of England will be forced to keep interest rates higher for longer than the European Central Bank. The current interest rate differential of a full percentage point between the BoE and ECB continues to favor sterling. However, we must note that the pair is technically oversold, making a short-term bounce possible. A prudent approach would be to use any rally back towards the 0.8650-0.8690 resistance area as an opportunity to enter new bearish positions at more favorable levels. This allows us to sell into strength rather than chase the market lower. Looking back, we saw a similar dynamic play out in the fourth quarter of 2025 when the pair repeatedly failed to sustain gains above the 0.8700 level. Each failure was followed by a swift decline, reinforcing the underlying bearish trend that has been in place for some time. That period confirmed the market’s willingness to sell the euro against the pound on any sign of relative economic strength from the UK. Create your live VT Markets account and start trading now.
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