Bullish trend reversals in EUR/GBP and EUR/USD post European central bank decisions

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Bullish trend reversals in EUR/GBP and EUR/USD post European central bank decisions

Both EUR/GBP and EUR/USD daily charts have bottomed out in the wake of the BoE and ECB rate decisions.

Source: Bloomberg

 Axel Rudolph | Market Analyst, London | Publication date: Friday 04 February 2022 

Yesterday’s widely anticipated Bank of England (BoE) rate hike by 25bps, doubling the base rate to 0.5%, led to the EUR/GBP slipping to its major long-term support at £0.8305 to £0.8277.

It is comprised of several yearly lows seen since December 2016 and thus technically very relevant. The cross dropped to £0.8286 in the wake of the BoE pushing borrowing costs to the highest level in two years with four policymakers voting for an even bigger 50bps rate hike.

The Monetary Policy Committee (MPC) also announced that it would reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by ceasing to reinvest maturing assets.

Source: ProRealTime

 

Hawkish comments by European Central Bank (ECB) president, Christine Lagarde, in which she declined to rule out an interest rate rise this year, then provoked a strong trend reversal in the EUR/GBP currency pair with it forming a very long bullish candlestick which took out the last seven trading days.

Source: ProRealTime

 

The rally through the three-month downtrend line and above the January peak at £0.8422 bodes well for the bulls with the 200-day simple moving average (SMA) at £0.8516 being targeted.

Back in November the moving average provoked failure and it will be interesting to see whether this could happen again. If not, and if the current bullish trend reversal has legs, the November to December peaks at £0.8595 to £0.8599 may perhaps also be reached in the weeks to come.

Minor support sits between the November trough and breached downtrend line at £0.8381 to £0.8374. While this support zone underpins, further upside pressure is anticipated.

Another currency pair which has been heavily impacted by the ECB’s hawkish stance is EUR/USD which rallied by more than 150 pips following yesterday’s press conference.

Source: ProRealTime

 

EUR/USD has since been catapulted to the January peak at $1.1482, a rise and weekly (Friday) chart close above which would not only confirm a medium-term bullish trend reversal pattern but would also push the $1.1513 to $1.1529 October and 5 November lows to the fore.

Once overcome, the August low, October high and 200-day SMA at $1.1664 to $1.1692 would be in focus. Potential slips should find support along the breached 2021 to 2022 downtrend line at $1.1412. Further support can be spotted between the late November and December highs at $1.1386 to $1.1382.