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The euro currency is testing towards a two-week high against the British pound around the 0.8650 level, as the single currency continues to gain traction against most major currencies after the release of strong German IFO data.
Traders have swept aside the slightly weaker German GDP print and choose instead to focus on the improved business climate in the Germany, as highlighted by the forward looking IFO survey.
Markets are forward looking in nature and tend to look towards the future rather than the current economic climate. This at least goes some way to explaining the rise in the euro currency on the foreign exchange market after the latest IFO survey.
Breaking the survey down, the German IFO Business Climate Index came in 99.2, which was much stronger than last month’s 96.8 number, while the Current Economic Assessment arrive at 95.7 points, which was up from 94.1 last month.
Most important of all was the IFO Expectation Index, which shows German companies projections for the next six months. This came in at a very strong 102.9, which was far better than the 99.5 reading last month and indicated that the economic prospects for German appear robust.
The IFO survey is taken from 9,000 responses and firms in the manufacturing, service sector, trade and constructions sectors. Give the positive tones coming from the survey it is no wonder that euro and indeed the German DAX are starting to pick the pace to the upside.
In terms of market sentiment traders are neutral towards the EURGBP pair. Typically, when a neutral bias is in play it speaks to the fact that continued range bound trading conditions may be ahead. Therefore the ActivTrader market sentiment tool is suggesting that a meaningful price breakout is unlikely at this stage.
EURGBP Short-term Technical Analysis
The four-hour time frame shows that a bearish breakout an ascending wedge pattern took place recently, and the EURGBP pair is starting to retest that area, around the 0.8660 level.
According to the overall size of the typically bearish reversal pattern the EURUSD pair could fall towards the 0.8500 level in the short-term if the break remains in place.
Traders should also note that a move back inside the wedge could cause a rally towards the top of the pattern, around the 0.8720 level.
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EURGBP Medium-term Technical Analysis
The daily time frame shows that a retest of a key trendline resistance, as denoted by the red line on the chart below. A move above the trendline could cause a further recovery towards the 0.8800 area.
According to technical analysis the EURGBP pair could slowly slip towards the bottom of its 5-year trading range around 0.8300 if the trendline remains defended. Overall, the trend remains bearish until the trendline is overcome.
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