EUR/GBP Price Forecast: Euro is testing trendline support at 0.8555

The Euro (EUR) is trading practically flat against the British Pound (GBP) on Friday, as bears kept testing the base of the ascending trendline from mid-July highs, around 0.8555, following Thursday’s reversal from 0.8585 highs. The Pound pared some losses on Thursday as the Bank of England (BoE) hinted at interest rate hikes if the war in Iran escalates.

The BoE left its Bank Rate on hold at 3.75%, as widely expected on Thursday, but the three hawkish dissenters within the committee and Governor Bailey's openness to tighten monetary policy if the Middle East conflict pushes Oil prices beyond $100 provided a fresh impulse to a weakening Pound.

In Europe, data released on Thursday revealed that the German preliminary Harmonised Index of Consumer Prices (HICP) accelerated to a 2.8% year-on-year (YoY) rate from 2.4% in June. These figures followed strong preliminary Gross Domestic Product (GDP) figures in Germany and the Eurozone, which add to the case for a European Central Bank (ECB) rate hike in September and keep Euro dips limited.

Technical Analysis: Euro bulls have run out of steam

EUR/GBP trades at 0.8560 with price action contained within an upward-sloping channel, but with momentum indicators hinting at a faltering bullish traction. The 4-hour Relative Strength Index (14) hovers just above the neutral 50 line, while the Moving Average Convergence Divergence (MACD) dips further within negative levels, suggesting waning momentum although not yet a decisive trend shift.

Sellers would have to breach the mentioned channel base, at 0.8555, and Wednesday's low at 0.8545 to confirm a bearish reversal and shift the focus to the July 23 and 25 lows around 0.8530.

On the topside, initial resistance emerges at Thursday's high of 0.8586, ahead of the channel top, near 0.8595, and the support area of late June, between 0.8600 and 0.8605, which is likely to act as resistance now.