• Euro recovery has stalled above 0.8600.
• The BoE monetary statement and the vote split will define GBP's direction.
• Investors will be looking for dovish signals at ECB Lagarde's press conference.

Euro recovery from Monday’s lows has stalled above 0.8600 on Thursday’s European market session, with investors awaiting monetary policy decisions by the BoE and the ECB later today.

BoE first and then the ECB might boost EUR/GBP volatility

The Bank of England is widely expected to leave its Bank Rate at the current 5.25%. It will not be a super-Thursday event, thus the vote split and the tone of the monetary statement will determine the Pound’s neat-time direction.

Similarly, the ECB will leave rates on hold at 4.5% and President Lagarde might try to convey a hawkish message, leaving options open for further hikes or, at least, deny any rate cuts in the foreseeable future.

The market, however, will be attentive to dovish signals by both banks. The economic outlook in the UK and in the Euro Area is deteriorating which poses a challenge for both central banks, as keeping credit conditions at restrictive levels might accelerate the economic downturn.

EUR/GBP Technical analysis

The pair is in an upward correction after having bottomed at 0.8540, with bulls finding resistance at the 38.2% Fibonacci retracement of the late November - Early December decline, at 0.8630.

Above here, the next resistance levels lie at the November 6 swing low, at 0.8650 and 0.8690. On the downside, the 0.8600 level is capping bears for now, closing the path to 0.8550 and a key support area at 0.8500. 

Technical levels to watch