EUR/GBP – BoE Holding Their Horses

As we continue to monitor how the new Omricon variant unfolds in the coming weeks in the United Kingdom, I believe that Bank of England will hold fire on a rate hike this Thursday but nevertheless this does not mean the window for at least rate hikes are closed during 2022, starting from February. Regardless of their decision this week, we know the tone will be leaning more towards tightening plans in the near future. My prediction is 15bp this February and 25bp by August.

Inflation/Growth

In terms of growth rate, the committee are worried about inflation rate which is currently sitting at 4.2% which surpassed the 2% target and it looks like it is due to reach at least 5% by April 2022.

Omricon uncertainties

There has been talks and hints of alternative plans to restrict the spread of the new variant. The main question is what will the restrictions be? Right now, work from home if possible has been implemented, Covid-19 vaccine passports are required in main enclosed events such as Football, cinema and concerts. On top of that, worried Boris Johnson is hinting towards making the vaccine mandatory by February 2022.

EUR/GBP

Bearish Picture

H4 – Head and Shoulder Pattern

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As price approached the 0.86 resistance handle on 8th December, we can see it formed a reversal pattern which is visible on a 4 hour timeframe. As it has broken the “neckline”, blue line, we are likely to price to reach 0.846 region which is also supported by a minor key level.

Bullish picture

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As it is forming fresh lows a couple of times this year, we have a strong RSI bullish divergence, this indicates that the sellers are running out of steam…for now. If this is true then we can expect the market to break the next resistance key level and travel up to 0.865 handle and eventually reach 0.871 handle.

For a look at all of today’s economic events, check out our economic calendar.