EUR/GBP: All looks good for a budding recovery – DBS Bank

EUR/GBP has broken over the resistance line drawn from April highs and is comfortably above the 40-week moving average of 0.8442 as a sign of budding recovery. Hawkish European Central Bank (ECB) rhetoric also adds fuel to the upmove, Benjamin Wong, Strategist at DBS Bank reports.

ECB’s hawkish rhetoric paves the way for recovery

“EUR/GBP is now comfortably above the 40-week moving average at 0.8442 and trying to sustain gains over a minor intermediate dropped-down resistance line from 0.8719, the late April highs. The moving average convergence divergence (MACD) signal is grinding out a nascent buy signal, so all looks good for a budding recovery.”

“ECB hawkish rhetoric is driving the cart. The next ECB policy meeting scheduled for 9 June is watching out for signs of a July policy lift-off. Given that inflation has nudged to 8.1% in May for the eurozone, Klass Knot (a noted hawk, President of the Dutch central bank) has remarked a 50 bps rate hike is not off the table.” 

“EUR/GBP has edged higher and paved cloud support at 0.8358 on the daily Ichimoku charts. Nonetheless, the cross still has hurdles to clear. 0.8618 the mid-May spike high and 0.8659 are intermittent resistance levels to break.”