Last Thursday the BoE raised interest rates by 25bp and set them at 1%. Given that interest rates in the Eurozone are still negative (-0.5%) it would seem that the Pound should react by strengthening against other currencies, particularly the EUR.
- rates up and the pound loses
- high risk of recession and a double-digit inflation in UK
- EURGBP in a downward correction after last week’s gains
However, the opposite happened and the reason for the Pound’s weakening was the BoE Governor’s assessment of the current state of the economy. Bailey predicts the possibility of recession in the UK and the persistence of high inflation for a longer period than previously assumed. He sees the cause in high energy prices and supply disruptions due to the war in Ukraine.
The pair EURGBP in the past week established the maximum of this year at the level of 0.8590. After reaching the zone of supply, declines appeared. On the H4 chart an engulfing pattern was formed. Today we observe attempts to break out of this formation at the bottom. MACD oscillator established the maximum and signals entering the downward phase.
On the H1 chart the price formed a head and shoulders formation and the quotations are approaching the neck line of this formation.
Breaking the neck of the H&S usually results in declines. The theoretical range of falls is the height of the formation, in this case it is 70 pips.
If the downward scenario is realized, the price may fall to the area of the downward trend line defeated last week.
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The above analysis is based on the PA+MACD strategy, a detailed description of which you can read HERE . I will talk more about the PA+MACD strategy applied to these currency pairs during the live trading sessions which you can attend from Monday to Friday.
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