Euro/Pound: A Dip Buying Opportunity?

Euro/pound is currently hovering around strong support levels, and today’s UK labor report has provided additional factors to consider. While payrolled employees dropped by 59,000 in August—indicating possible labor market strain—the broader employment picture is more optimistic. The UK saw a surge of 265,000 new jobs in the three months leading to July 2024, surpassing market forecasts of 115,000. This marks the sharpest job growth since November 2022 and is largely driven by a rise in full-time employment. Despite these positive signs, the mixed nature of the labor data has left traders wondering whether the Bank of England will move toward deeper rate cuts or maintain its cautious stance.

The real test will come tomorrow with the release of the UK GDP data. Should the print come in weaker than expected, we could see increased market speculation that the BOE will be forced to cut rates sooner rather than later. This could trigger a wave of dip-buying in euro/pound as traders position themselves for a potential rally. Given the strong technical support forming in euro/pound, this is an attractive setup for those looking for upside momentum in the pair.

Additionally, all eyes are on Thursday’s ECB meeting. With a rate cut already fully priced in, the real focus will be on the ECB’s forward guidance. If the central bank takes a more hawkish stance than markets anticipate, EUR/GBP could surge higher, especially as the BOE’s rate cuts seem deferred rather than canceled. As the euro strengthens on a hawkish ECB and the pound faces potential downside from weak UK data, euro/pound becomes one of the most interesting trades to watch this week.

Traders should keep an eye on both the GDP print tomorrow and the ECB meeting, as they present prime opportunities for capturing moves in euro/pound. A combination of weak UK data and hawkish ECB guidance could align for a significant rally in the pair.