EUR/GBP rises as markets gear up for a hike on Thursday by the ECB

• EUR/GBP closed above 0.8600 and saw 0.20% gains.

• A Reuters report indicated that the ECB will hike on Thursday on higher-than-expected inflation forecasts.

On Wednesday, the EUR/GBP closed above 0.8600, and the EUR gained ground over the GBP as investors are preparing an announcement of a 25 basis point (bps) hike by the European Central Bank (ECB) on Thursday.

In line with that, Reuters reported that the European Central Bank (ECB) foresees eurozone inflation remaining above 3% next year, exceeding the previous 2% projections, which would justify a tenth consecutive interest rate hike at its upcoming meeting on Thursday. In the meantime, market expectations are divided between the bank maintaining current rates and a 25 basis point increase due to concerns about high inflation and looming recession fears.

Despite this projection strengthening the case for a hike, analysts still believe that the decision will be a close call.

EUR/GBP Levels to watch

The daily chart analysis indicates a neutral to bullish outlook for EUR/GBP, as the bulls show signs of resurgence but still face challenges ahead. Having turned flat in positive territory, the Relative Strength Index (RSI) suggests a potential market equilibrium with balanced buying and selling pressure, while the Moving Average Convergence (MACD) histogram exhibits increasing green bars. Furthermore, the pair is above the 20-day Simple Moving Average (SMA) but below the 100 and 200-day SMAs, indicating that the bulls aren't done yet and that the outlook is still positive for the short term.

Support levels: 0.8590, 0.8567 (20-day SMA), 0.8550.

Resistance levels: 0.8615 (100-day SMA), 0.8630, 0.8650.

EUR/GBP Daily Chart