The euro eased against sterling on Tuesday, with EUR/GBP trading at 0.8634 and pressing two-week lows near 0.8630 after breaking below the base of a symmetrical triangle pattern. Germany’s April industrial production rebounded after two straight declines, while the trade surplus narrowed against expectations, yet the releases failed to lift euro crosses. Markets remain focused on the European Central Bank, where a rate rise is expected on Thursday, a factor limiting further downside in the single currency.
On charts, bearish momentum persisted: the 4-hour Relative Strength Index sat in the low 40s, and the Moving Average Convergence Divergence remained in negative territory. If support around 0.8630 gives way again, attention shifts to the 2026 lows in the 0.8610–0.8620 area. Resistance is seen at a reverse trendline at 0.8637; a move back above it would bring the June 4 and 5 highs at 0.8655 into view, followed by the triangle top at 0.8665. UK data are also on the agenda, with monthly GDP and manufacturing production due on Friday.
Technical and Fundamental Drivers Signal Bearish Bias
We are seeing the Euro weaken against the Pound, currently testing a significant support level around the 0.8630 mark. The technical indicators are pointing towards further downside, suggesting that selling pressure is building. This provides a clear short-term bearish bias for our trading strategies.
This view is strengthened by the divergence in inflation data, with the latest UK CPI figures holding firm at 4.2% while the Eurozone’s HICP has cooled to 2.4%. This persistent inflation in the UK puts more pressure on the Bank of England to maintain a hawkish stance compared to the European Central Bank. This fundamental backdrop supports a stronger pound relative to the euro.
The ECB rate hike expected this Thursday seems fully priced in, so we are not expecting it to strengthen the Euro significantly. We are more focused on the UK GDP data due this Friday, as a strong reading could reinforce the Pound’s position and trigger the next leg down in the EUR/GBP pair. Historical data from late 2023 showed a similar setup where strong UK data led to a sharp 100-pip drop in the pair over two weeks.
Strategy Considerations and Risk Management
Given the pressure on the 0.8630 support, we believe buying put options with a strike price just below this level, perhaps at 0.8620, is a viable strategy for the coming weeks. This allows us to capitalize on a potential break towards the year’s lows around 0.8610 while clearly defining our maximum risk. The increased volatility expected around the data releases makes options an attractive tool.
However, we must watch for any failure to break the 0.8630 support. If the pair rebounds and moves decisively back above 0.8640, it would signal that the bearish momentum has faded. In that event, we would look to close any short positions and reassess the situation.
