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Divergence and Oversold RSI May Invite Buyers Back
Economic
Forex
Summary:
This divergence adds weight to the case for a trend reversal, increasing the likelihood of a recovery from current levels.
Buy
TradingEURGBP
EXP
0.86309
Entry Price
0.86950
TP
0.85850
SL
0.86430 +0.00311 +0.36%
0
Point
Flat
0.85850
SL
CLOSING
0.86309
Entry Price
0.86950
TP
A mixed bag of economic data and a major trade agreement between the U.S. and the EU have recently influenced the outlook for EUR/GBP, while technical indicators are hinting at a potential bullish reversal.
Economic data from the euro area showed that the region’s GDP expanded by 1.4% year-over-year in Q2 2025, slightly below the 1.5% growth seen in the first quarter. In Germany, quarterly GDP rose from 0% to 0.4%, suggesting a modest pickup in Europe’s largest economy.
German retail sales for June also provided some upside surprise, increasing by 1.0% month-on-month after a sharp decline of -1.6% in May, and beating market expectations for a 0.5% rise. Meanwhile, the European Central Bank’s latest Consumer Expectations Survey indicated that inflation in the eurozone is projected to continue its downward trajectory over the next 12 months.
In terms of international trade, the U.S. and the European Commission, led by President Ursula von der Leyen, reached a landmark agreement. Under the new deal, the U.S. will impose a fixed 15% tariff on a broad range of EU exports—including automobiles, machinery, and consumer goods. This marks a significant increase from the 1.2% average tariff rate seen in 2024.
In return, the EU has pledged to purchase $750 billion worth of U.S. liquefied natural gas (LNG) over the next three years and to invest $600 billion in key American sectors such as energy, defense, and manufacturing. According to EU Trade Commissioner Maroš Šefčovič and sources from the European Commission speaking to Politico, the $600 billion investment will be entirely funded by private companies, with no direct financial involvement from the EU government.
On the UK side, shifting interest rate expectations have offered some support to the British Pound. While markets are still pricing in a 25-basis-point rate cut from the Bank of England on August 7, expectations for further easing by year-end have softened slightly, with forecasts retreating by around five basis points over the past week.
Sentiment toward the Pound is also evolving. Recent CFTC data showed a reduction in bullish positioning, as the previously net-long GBP position of $2.4 billion has now flattened, reflecting a more neutral market stance.
Technical Analysis
EUR/GBP has recently pulled back toward the 200-period moving average on the 4-hour chart, currently located at 0.8613. This level coincides with a key support zone near 0.8600, and a firm hold above this area could pave the way for a potential rebound. If bullish momentum builds from this base, price action may target the next resistance at 0.8697, with the 100-period moving average at 0.8662 serving as an intermediate hurdle. A close above the latter would likely accelerate the move higher.
Notably, the RSI has dropped to 30, a level traditionally associated with oversold conditions. This suggests that bearish pressure may be fading. Furthermore, the RSI is forming a bullish divergence relative to price, as it reaches oversold levels not seen since the pair began its previous upward leg. This divergence adds weight to the case for a trend reversal, increasing the likelihood of a recovery from current levels.
Should bullish signals hold, long positions from the current support zone could be favored. However, a decisive break below 0.8580 would negate the bullish setup and could open the door to deeper losses.
Trading Recommendations
Trading direction: Buy
Entry price: 0.8628
Target price: 0.8585
Stop loss: 0.8695
Validity: Aug 08, 2025 15:00:00
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