EUR/GBP forecast: Is it safe to buy the EUR to GBP dip?

By:
on Jul 7, 2022
  • The EUR/GBP price crashed hard this week as European concerns emerged.
  • There are concerns about the upcoming ECB interest rate hike.
  • Sterling rose after the sudden resignation of Boris Johnson.

The EUR/GBP price plummeted to the lowest level since May 2022 as the political crisis in the UK escalated. The euro crashed to a low of 0.8482, which was about 2.7% below the highest level this month. Similarly, the EUR/USD and EUR/CHF pairs have slumped to the parity level of 1.00.

UK political circus

The EUR to GBP exchange rate has been in a strong bearish trend as investors worry about the European economy and the actions by the European Central Bank (ECB). The EU economy has had an uneven recovery and there is a likelihood that the trend will continue.

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The biggest challenge is on energy, where many energy companies are struggling. Most energy firms did well because of the cheap flow of Russian gas. Now, Russia has lowered gas deliveries sharply and there is a likelihood that the country will put a full embargo. 

Such a move will have a major implication because of the vital role that energy plays in the economy. Indeed, Germany’s economy minister has compared such scenario to when Lehman Brothers collapsed.

Most analysts believe that the European Central Bank (ECB) will hike interest rates when it meets this month. Still, based on how the bond market behaved after the bank ended QE, there are concerns that the bloc could go through another debt crisis.

The EUR/GBP price also crashed as the political crisis in the UK accelerated. In a statement, Boris Johnson said that he would resign after his government collapsed. He said that he will completely step down in October after the Conservative’s meeting. However, many leaders are calling for him to step down immediately. 

Meanwhile, data published on Thursday showed that UK house prices surged in June this year. According to Halifax, the house price index rose from 1.2% to 1.8% on a MoM basis. This translated to an annualized increase of 13%.

EUR/GBP forecast

EUR/GBP

The four-hour chart shows that the EUR/GBP pair made a strong bearish breakout this week. As it dropped, the pair managed to move below the lower side of the ascending channel that is shown in blue. 

At the same time, the pair has moved below the 25-day and 50-day moving averages and the lower side of the Andrews Pitchfork indicator. The Relative Strength Index (RSI) has moved to the oversold level at 30. Therefore, the pair will likely keep falling as bears target the key support at 0.8400.

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