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The EURGBP recovered some modest gains after finding near-term support at the 0.8580 level at the close of the week. The pair advanced by +0.11% early Friday morning as positive German GDP data helped lift bullish sentiment above the 0.8580 level. German GDP YoY Q3 data rose to 1.2% against 1.1% while the GDP QoQ Q3 data climbed to 0.4% against 0.1% previous reading. The Gfk Consumer Climate (December) rose to -40 from a previous -41.9, although it missed expectations by 0.4.
The ECB meeting minutes released on Thursday helped the EURGBP recovery as ECB members echoed further tightening going into the December meeting. ECB’s Schnabel indicated the Central Bank will probably need to raise rates further into restrictive territory. Schnabel added that the current economic data suggests that hopes for pivoting the rate cycle remain limited.
However, downside pressure for the EURGBP remains as the possibility of a small rate hike by the ECB remains a possibility. A few officials were looking at 50bps than 75bps at the December policy meeting. Traders should closely watch the Euro inflation data due for release next week Wednesday for further analysis on the trajectory of the ECB.
The BoE remains resolute in restoring market stability and confidence in the market as indicated by the improving economic data released earlier this week, although the economy remains in contraction.
Weekly Chart Analysis
The EURGBP suffered selling pressure extending a 3-week of losses after bulls failed to challenge the 0.8800 level. Bears are trading slightly below the Bollinger Band Baseline at 0.8600 level and a break below that level could extend targets to 0.8500, a 13-week low and 0.8280 level. The MACD indicator suggests that bears could maintain the bearish trend as volume bars break below the 0.00 neutral level.
However, bulls could look for short-term opportunities if the price manages to hold above the 0.8600 handles. Upside gains are capped by the 0.8800 high and a break above that level could trigger further buying towards the 0.9280, a 2-year high.
The ActivTrader Sentiment tool suggests that 61% of retail traders are now bullish on the EURGBP. Traders could be looking for a bounce above the near-term support at the 0.8580 level. The positive German GDP helped lift the EURGBP along with strong ECB tightening remarks.
However, the intraday rally lacks convincing bullish momentum as the pound maintains a strong underlying bias. The falling UK government bond yields suggest easing financial conditions and the BoE has room for further tightening amidst improving composite PMI data. A failure to hold above the near-term support could cause early buyers to liquidate their positions below the 0.8580 level.
Daily Chart Analysis
The EURGBP maintained a steady recovery from the 0.8580 level, 3-month support to the close of the week. The near-term support coincides with a 200-day moving average and upside gains are capped by the 0.8700 psychological level coinciding with a 50-day moving average. A break above that level could see a further rally towards the 0.8850 level, a 2-months high.
However, a break below the 0.8580 support could invalidate the possibility of a bullish recovery, reinforcing the bearish outlook and the next key support level is at 0.8350 level. The RSI indicator reading is currently trading below the 50.00 level suggesting selling pressure could weigh sentiment in the near-term.
