EUR/GBP Price Analysis: Volatility contracts ahead of UK/Eurozone PMIs

• EUR/GBP is auctioning in a volatility contraction pattern ahead of the UK/Eurozone PMIs release.
• ECB Rehn sees more interest rate hikes beyond March and expects that Eurozone will avoid recession.
• A pause in the policy tightening spell might create troubles for the BoE as the inflation figure is still double in digits.

The EUR/GBP pair is displaying a sideways auction in a narrow range of 0.8870-0.8890 in the Tokyo session. The cross has turned sideways as investors are awaiting the release of the preliminary PMI figures for the Eurozone and the United Kingdom for further impetus.

Considering the fact that economic activities in the UK region are slowing down as the Bank of England (BoE) has increased interest rates dramatically, the street is expecting a pause in the policy tightening spell. This could create trouble for the BoE as the inflation figures are still double in digits.

Meanwhile, Eurozone inflation is declining meaningfully but is still far from the desired rate. European Central Bank (ECB) Governing Council member Olli Rehn cited “It would be appropriate for the European Central Bank to raise rates beyond March and reach the terminal rate this summer,” as reported by Reuters. He further added that Eurozone may avoid recession and the growth will be around 1%.

EUR/GBP is auctioning in a Symmetrical Triangle chart pattern that indicates a sheer contraction in volatility, which is followed by a breakout in the same. The downward-sloping trendline of the above-mentioned chart pattern is placed from February 3 high at 0.8979 while the upward-sloping trendline is placed from January 19 low at 0.8722.

The 20-period Exponential Moving Average (EMA) at 0.8880 is overlapping on the asset price, which indicates indecisiveness in the sentiment of the market participants.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00, which signals a lackluster performance ahead.

Should the cross breaks above February 17 high at 0.8929, Euro bulls will drive the asset towards February 3 high at 0.8979 followed by the psychological support at 0.9000.

On the flip side, a breakdown below February 14 low at 0.8804 will expose the asset to January 29 low at 0.8763 and January 19 low at 0.8722.

EUR/GBP four-hour chart