ING's EUR/GBP Forecast: Support Holds, But Flow Signals Are Mixed

The core driver for ING's bullish EUR/GBP view is a hawkish Bank of England response to persistent UK inflation. Rate markets have repriced aggressively, with the sterling curve seeing one of the largest adjustments from the recent energy shock. This reflects inflation already well above target and a BoE with sufficient hawkish members to halt the easing cycle, creating a fundamental support for the pound relative to the euro.

That support is expected to materialize in the current correction. ING sees the EUR/GBP pair finding strong resistance in the 0.8600/0.8615 area. The setup hinges on the BoE's policy stance outpacing any eurozone stimulus, which could allow the correction to extend toward that level.

Yet this bullish EUR/GBP trade faces a ceiling. ING's broader outlook for the euro is mildly bearish, indicating underlying eurozone weakness. This divergence caps potential gains, as any euro strength from external factors may be offset by domestic pressures, keeping EUR/GBP gains in check despite the hawkish BoE.

Flow Metrics: Volume and Positioning Check

The technical picture shows a very strong bullish trend, but flow data reveals signs of exhaustion. The pair is trading near 0.8739 GBP, with the 0.8685 level acting as critical support. However, key momentum indicators are flashing overbought conditions, with the RSI, CCI, and Williams %R all in neutral overbought territory. This suggests the recent rally may be stretched, increasing the risk of a short-term bearish correction.

A crucial support zone is forming near 0.8750. This level is significant as it represents prior resistance that has held multiple times, and it is now converging with the 50-day EMA. This confluence creates a potential consolidation zone where the bullish momentum could pause to digest gains. The market's struggle to sustain rallies, as noted in recent sessions, supports the idea that a breather is needed.

The bottom line is that while the underlying trend remains bullish, the flow signals are mixed. The overbought conditions and the test of the 0.8750 zone indicate the move is vulnerable to a pullback. For now, the setup favors waiting for a clear signal from this key support before committing to further bullish exposure.

Catalysts and Risks: What to Watch

The immediate catalyst is the duration of the energy shock. ING notes the duration of the oil shock is going to have a big bearing on this debate. If energy prices remain elevated, UK inflation stays sticky, and the BoE maintains its hawkish stance, that provides the fundamental fuel for the EUR/GBP correction to extend toward the key support zone.

A break above the 0.8750 level would confirm the bullish trend is intact, with the next major targets at 0.8856 GBP and 0.8958 GBP. This would signal that the recent overbought conditions are being digested and that the bullish momentum is resuming. The path of least resistance remains up, but the market must first prove it can hold above the critical 0.8685 GBP support.

The primary risk is a breakdown below that support. A sustained move below 0.8600 would signal a breakdown in the current support structure, invalidating the bullish correction thesis. This would likely trigger a sharper pullback, potentially testing the 0.8750 zone from the downside. For now, the setup favors waiting for a clear signal from the 0.8685-0.8750 zone before committing to further bullish exposure.