Insights 
VT 
The Euro is gaining against the Pound but might face resistance above 0.8720. Recent political developments in France and hawkish comments from ECB officials have enhanced the Euro’s strength.
From a technical standpoint, the EUR/GBP has experienced choppy trading, confined within a 60-pip range near 0.8700 in recent weeks. A rise past the resistance zone at 0.8720-0.8730 could target the year-to-date high of 0.8750, with trendline resistance around 0.8795.
The European Central Bank And Its Policies
The European Central Bank (ECB), headquartered in Frankfurt, manages the Eurozone’s monetary policy and aims to maintain 2% inflation. The ECB uses interest rates as a primary tool and occasionally Quantitative Easing (QE) in economic crises to achieve stability.
QE involves the ECB buying assets to boost the economy, typically weakening the Euro. Conversely, Quantitative Tightening (QT) reinforces the Euro when economic recovery allows the ECB to reduce bond purchases. The ECB’s decisions can significantly impact currency strength.
The Euro is gaining on the Pound, but we are seeing it struggle to break past the 0.8720 area. Political stability in France is providing a tailwind, while officials at the European Central Bank (ECB) continue to sound hawkish on interest rates. For now, the EUR/GBP pair remains stuck in the choppy range around 0.8700 that has defined it for weeks.
We just saw the flash Harmonised Index of Consumer Prices (HICP) for the Eurozone, which came in this morning at 2.7%, slightly above the 2.6% consensus. More importantly, core inflation, which the ECB watches closely, remains stubbornly high at 3.1%. This data supports the ECB’s tough talk and makes it harder for them to consider cutting rates anytime soon.
UK Inflation And Market Expectations
This contrasts sharply with the situation in the UK, where inflation data released earlier this week on October 15th showed the headline rate cooling to 3.0%. This divergence in inflation paths suggests the Bank of England has less pressure to remain aggressive compared to the ECB. We believe this fundamental backdrop supports a stronger Euro against the Pound in the coming weeks.
Given the tight range, a breakout trade seems likely, and the path of least resistance appears to be upwards. Traders could consider buying short-dated call options with a strike price just above the 0.8730 resistance level to position for a potential move towards the year-to-date high of 0.8750. This strategy offers a defined-risk way to profit if the pair finally breaks out of its consolidation pattern.
We are watching the 0.8730 level as the key trigger for bullish positions. Looking back at the sharp central bank policy shifts we saw during 2023 and 2024, a decisive break could lead to a quick move. Conversely, a strong rejection from this resistance could see the price fall back towards the 0.8660 support level, presenting opportunities for range traders.
