Created on January 07, 2026

• The Euro has stabilized against the British Pound on Tuesday as we find ourselves testing the crucial 200-Day EMA.
• If it holds, a “fade the rally” move could set up.
• The fundamental context in this pair is that the British Pound had been trading very weakly against the Euro.

The interest rate cut from the Bank of England was more or less a hawkish cut, meaning that they brought rates down to 3.75% but they also mentioned the resilient service sector and the FTSE 100’s break above the 10,000 level as signs that there is still a lot of belief in the growth of the UK economy and perhaps it’s not as sluggish as people had thought. They thought that the central bank would have to come in and save everybody essentially.

Market Outlook and Key Levels

Conversely, the Euro has been struggling with risks following the Bulgarian entry into the Eurozone and a wait-and-see approach from the ECB. German inflation data has been released during the session; it’s easing towards 2.2%. It reinforces the view that the ECB doesn’t have a lot of room for hawkish surprises and therefore they probably have to sit fairly still. This could continue to hamper any Euro strength not only here, but everywhere else as well.

If we do rally from here, the market reaching towards the 0.8725 level is a very real possibility, with the 0.8750 level above there being an area that I would watch.

If we break down below the 200-day EMA, then the 0.86 level is your initial support, and if we break down below that, the bottom falls out here. I do think we are in the midst of some type of trend change, but we’ll just have to wait and see. I prefer to fade rallies that show signs of exhaustion.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.