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The EURGBP rallied by +0.16% to the close of the week as UK softer inflation data points towards a BoE pivot. The UK CPI YoY data dropped to 10.1% against the 10.3% forecasted giving EURGBP bulls a lift in the near term as rate expectations declined. The markets are pricing in a 65% chance of a 25bps increase from the BoE in March.
The ECB’s speakers earlier in the week indicated that they forecasted the need for further tightening as inflation remains a major threat to global growth. The German Producer Prices fell by 1.0% MoM for January which still represented an annual rise of 17.8% against the 16.4% expected.
However, the UK’s Retail Sales YoY data beat expectations coming in at -5.1% vs -5.5% surveyed, while MoM data rose to 0.5% against -0.3% anticipated in January. Moreso, the labour market remains strong as indicated by the drop in UK’s Claimant Count Change to -12.9K vs 17.9K. The EURGBP could suffer near-term weakness as Eurozone GDP YoY Q4 slowed to 1.9% from 2.3%.
Traders should look forward to next week’s data, including the UK’s industrial data and Eurozone CPI data. These key events will shape the direction of the EURGBP in the following weeks.
Weekly Chart Analysis
The EURGBP recovered modestly as bulls attempt to challenge the 0.8950 level. Bulls bounced off a 0.88000 level shying away from the 0.8750 near-term support, coinciding with a Bollinger Band Baseline. A break above that level could reinforce the bullish outlook towards the 0.9280 level, 10th of September 2020 high. Looking at the MACD indicator, the volume bars are still trading above the 0.00 benchmark suggesting that the outlook is bullish-biased.
However, a failure to break above the 0.8950 resistance could cause the pair to experience a corrective pattern towards the 0.8750. A breach of that near-term support could invalidate the bullish outlook and the key support level to watch out for is the 0.8550 level, coinciding with a 50-day moving average.
The ActivTrader Sentiment tool suggests that 83% of Retail Traders are bearish on the EURGBP pair. This sentiment could largely be technically influenced as the pair trades towards a 5-month high and bears could be looking to cash in a price retracement at the level. Moreso, better-than-expected UK retail sales could see the 3-day rally come to an end as consumer spending indicates confidence in the market.
However, bulls could have a chance if the pair manages to break above the 0.8950 near-term barrier. Fundamentally the EURGBP could trade higher as the ECB doubled down on its tightening path with a bid to bring inflation to normalization. Traders should pay close attention to the upcoming Eurozone Inflation data due next week.
Daily Chart Analysis
The EURGBP extended a 3-day rally after bulls found near-term support at the 0.88000 level coinciding with a 50-day moving average. The RSI indicator broke above the 50.00 neutral level as sentiment turns bullish. Upside gains are capped by the 0.8950 level, a monthly high and a break above that level could reinforce the outlook towards the 0.9000 level.
However, a violation of the 0.8750 level could trigger downside pressure as the 50-day moving average turns to a dynamic resistance level for the EURGBP pair. The downside is faced with a layer of strong support levels which should be breached if the outlook should turn bearish in the near term. Traders should pay close attention to the 0.8750 level and the 0.8650 level, coinciding with a 200-day moving average. A successful break below those levels will give bears access to the 0.8550 level.
