EUR/GBP fails to reverse the bearishness

With most of the focus this week having been on the US CPI and the Federal Reserve, some assets have been left in the background. EUR/GBP may have been slightly overlooked this week but the pair has made some interesting moves and is currently trading at a 10-month low.

EUR/GBP has been consolidating around 0.8505 for the majority of the past two weeks and even held its ground last Thursday when the ECB cut rates by 25 basis points. But the pair gapped lower at the open on Monday and has been facing bearish pressure since then. The stronger wage data in the UK didn’t help as it firmed up the British pound. Mixed results from the European elections at the weekend could be behind some of the recent weakness in the euro, and so further volatility can be expected in coming months as both France and the UK head to the polls.

The pair has become heavily oversold but Wednesday’s attempted reversal lacked conviction and ultimately reversed lower on Thursday. The fact the daily candlestick failed to mark a higher high, and maintained the lower high and lower low dynamic evidences the lack of bullish appetite in current conditions. The simple moving averages are placed in descending order, indicating a bearish formation.

EUR/GBP daily chart

Past performance is not a reliable indicator of future results.

The main catalysts next week will be the UK CPI data and the Bank of England (BoE) meeting. No change in monetary policy is expected but any further signs of a cooling UK economy could give the euro enough space to attempt a reversal if GBP gets sold off. It seems unlikely as central banks have been playing their cards close to their chest recently, but if the BoE gave any clues as to when a rate cut may happen then EUR/GBP could recover some ground if rate differentials adjust based on rate cut expectations.

EUR/GBP is a pair that essentially moves sideways choppily. This month’s drop takes it back to where it was trading roughly this time two years ago before the UK budget meltdown caused the pound to devaluate significantly. This suggests the pair is pretty well supported on the downside. That said, further bearishness could still take EUR/GBP below 0.83 in the coming weeks.

EUR/GBP monthly chart

Past performance is not a reliable indicator of future results.





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