EUR/GBP Price Forecast: Upside remains capped near 0.8600 as ECB decision looms

EUR/GBP prices remain confined near 0.8600 as the European Central Bank's decision looms, according to a recent forecast. The 100-period Simple Moving Average (SMA) at 0.8599 acts as a barrier to further upward movement, while momentum indicators suggest a moderate bullish sentiment. Currently, the cross trades around 0.8588, with minimal daily fluctuations.

The underlying sentiment leans favorably for the Euro (EUR), as markets have already accounted for a 25-basis-point interest rate increase from the ECB, marking the second hike this year. This optimism is bolstered by higher oil prices fueling inflation pressures in the Eurozone. Conversely, the Bank of England is expected to maintain interest rates unchanged during its September meeting, providing limited support to the British Pound (GBP).

Concerns surrounding the UK's fiscal health also cast a shadow over the GBP. Rabobank analysts acknowledge that higher oil prices will contribute to inflation potential, but believe the cyclical relaxation in the UK labor market will prevent second-order inflation effects, leading to potential disinflation. Moreover, the Bank of England's July policy meeting was reported as "more hawkish than expected" by three members of the Monetary Policy Committee (MPC), who voted for an immediate rate hike.

However, they underline that a broader shift towards rate increases appears unlikely. On the daily chart, EUR/GBP shows a mild bullish bias above the rising 50-day SMA at 0.8553 and the ascending support trend-line near 0.8570. Yet, the 100-day SMA at 0.8600 and the 200-day SMA at 0.8649 hinder the upward trajectory. The Relative Strength Index (RSI) is around 58, indicating positive momentum without signaling overbought conditions, while the MACD histogram remains slightly positive.

A breach above the 100-day SMA could trigger interest in the 200-day SMA. On the downside, the trend line near 0.8570 provides initial support, followed by the 50-day SMA at 0.8553. A decisive move below these levels would expose the 0.8500 and 0.8450 horizontal support levels.