EUR/GBP
The dollar traded lower against almost all of its G10 peers during the European morning Tuesday. It was stable only vs JPY and CAD.
EUR/USD started strengthening well before the German ZEW survey for January, but in the event, lost much of the gains despite the strong reading, only to find some buy orders around 1.1590 that lifted it back up again. Both the current situation and expectation indices surged for the 3rd consecutive time, beating the market consensus. The expectations index rose to 48.4 from 31.8, while the current situation ticked up to 22.4 from 10.0. Even though this will not be enough to reverse the negative sentiment towards EUR, it could favor the continuation of the upside corrective wave, which could challenge the resistance of 1.1650 in the near future.
On Wednesday we get the minutes from the latest BoE meeting. The focus will be on the number and the names of the dissenters, especially following the fall in December’s CPI rate below 1% and the comments by the BoE Gov. Carney that lower oil prices are positive for the UK. On top of that, the UK unemployment rate is expected to have declined while average weekly earnings are anticipated to accelerate, suggesting less slack in the labor market. Overall this could be GBP-supportive and the better fundamentals compared to Eurozone could push EUR/GBP further down.
EUR/GBP slid during the European morning Tuesday after finding resistance slightly below the key line of 0.7700 (R1). That move confirmed a lower high on the 4-hour chart. Thus I would expect the decline to continue and perhaps challenge again the support zone of 0.7600 (S1). Our short-term momentum studies corroborate my view. The RSI moved lower after hitting resistance at its 50 line, while the MACD, already negative, shows signs of topping. This shows that the price could regain its downside momentum in the close future. As for the bigger picture, the downside exit of the triangle pattern on the 18th of December signaled the continuation of the longer-term downtrend, thus the overall outlook stays negative in my view.
Support: 0.7600 (S1), 0.7500 (S2), 0.7415 (S3).
Resistance: 0.7700 (R1), 0.7745 (R2), 0.7785 (R3).
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