EUR/GBP Price Forecast: Bounces up from 0.8530 with the bearish trend intact

The Euro (EUR) ticks up against the British Pound (GBP) on Thursday, yet with the immediate bearish trend intact, after having depreciated about 0.8% over the previous three days. The EUR/GBP pair has returned to 0.8545 after testing the support area at 0.8530, but the rebound seems corrective, as upside attempts are lacking conviction so far.

The common currency is struggling this week with Oil prices on the rise and France's borrowing costs escalating, as government debt reached its highest levels since 1946, boosting concerns about a credit crisis. Furthermore, comments from European Central Bank President Christine Lagarde, comments saying that the bank views "a measured response as appropriate to keep inflation in check," added pressure on the Euro, with the Bank of England (BoE) laying the ground for some monetary tightening

Strategists at Rabobank, however, caution that “while higher short-term interest rates are a currency positive factor, we see little room for sustainable gains for the pound from this front given that more than 100 bps of policy tightening is priced in on a 12-month view.” In their view, “it is more likely that GBP could soften as rate hike risks are reined in.”

Furthermore, Rabobank highlights that the biggest focus for UK markets will be the October 28 budget. “If the current Labour Party leadership team maintains its promise to respect the former Chancellor’s fiscal rules, there may be room for a post-budget relief rally in the pound, says the bank in a note, warning that “given the PM’s wish list, this may suggest more tax rises which have negative growth connotations.”

Technical Analysis: Resistances at 0.8550 and 0.8565 set to test Euro recovery

EUR/GBP trades at 0.8543, consolidating losses after a sharp reversal earlier this week, with the oversold levels in intraday Relative Strength Indexes (RSIs) allowing for a minor correction. Momentum indicators in the 4-hour chart remain strongly bearish, with the RSI just above the 30 level, which marks the limit of oversold territory, while the Moving Average Convergence Divergence (MACD) remains slightly negative, altogether highlighting that bears are in control.

Upside attempts are likely to be tested at a previous support area around 0.8550 (August 28, September 14 lows), which might now act as resistance, and the broken trendline around 0.8565. A confirmation above these two levels is needed to ease bearish pressure and bring the September 29 highs, around 0.8585, back into focus.

On the downside, below the mentioned 0.8530 support area (July 24, August 12 lows), the July 17 high in the 0.8515 area seems a plausible target ahead of the July 10 and 21 lows in the 0.8480-0.8490 area.