EUR/GBP hits two-month highs near 0.8700 ahead of ECB

• EUR/GBP resumes upside after two-day correction.
• Price peaks at 0.8688, the strongest level since June 15.
• Thursday: ECB decision and Truss’s energy plan.

The EUR/GBP resumed the upside after a two-day correction. Recently it climbed to 0.8688, reaching the highest level since June 15. It is hovering around 0.8665, about to post the second highest daily close in 16 months.

Thursday could be a busy volatile day for EUR/GBP with the European Central Bank meeting and the energy plan in the UK. The ECB is expected to raise rates by 75 basis points and will release macro forecasts. “Higher than expected August CPI readings certainly make the case for more aggressive tightening and it seems that more and more officials on the Governing Council are leaning towards this outcome.  While the energy crisis adds another wrinkle to the process, we think it is too early yet for it to impact ECB policy right now”, mentioned analysts at Brown Brother Harriman.

UK PM Liz Truss is expected to unveil her energy plans tomorrow as the pound remains under pressure. The GBP/USD dropped toward the lowest levels in decades near 1.1400.

With EUR/GBP trading around critical levels and considering the mentioned developments, volatility is set to remain elevated. The cross is near 0.8700 and also close to the 200-week Simple Moving Average at currently at 0.8702. A firm break above 0.8720 should clear the way to more gains over the medium-term. On the contrary, if the pound manages to keep that level, a recovery seems likely, particularly if the cross falls below 0.8560.

Technical levels