EUR/GBP gapped lower on Monday

EUR/GBP

• The dollar traded unchanged or lower against its G10 peers during the European morning Monday, reflecting the restrained mood of investors following the Greek banks capital controls heading towards referendum on Sunday. It was lower against EUR, SEK, NOK and CHF, in that order.

• In Germany, all the regional CPIs rates fell on a monthly and annual basis in June. In four out of five reporting so far, prices actually fell on a mom basis. These figures indicate that the national inflation rate, due out later this afternoon, is likely to fall as well. This also increases the likelihood that Tuesday's Eurozone CPI is likely to fall. Nevertheless, the market is likely to look through the economic data this week and focus mainly on the Greek referendum and to any opinion polls released ahead of it. Even though the Greek PM urged voters to reject the creditors' proposal, the first polls in Greece showed that most of the Greeks are in favor of a deal.

• Nonetheless the Greek dilemma still weighed on the markets. The flight to safety sent bond yields of the core Eurozone economies Germany and France down 8 to 12bps while the yields of the peripheral countries rose 13 to 20 bps. European equity markets were all in the red with the DAX index down around 3%. EUR/USD gained a bit in an attempt to cover the opening gap, but the move stayed limited below the key 1.1145 zone. A break of that territory is needed to see scope for further advances.

• EUR/GBP gapped lower on Monday, dipping briefly below the key psychological number of 0.7000 (S2). The pair bounced back immediately and managed to cover the gap by midday in Europe. Currently, the pair attempts to break above the 0.7080 (R1) resistance line. A break above that hurdle is likely to push the rate higher, for an initial test of the upper boundary of the downslope channel and then perhaps towards our next resistance of 0.7130 (R2). Looking at our momentum indicators, however, further advances may not be immediate. The RSI found resistance fractionally below the 50 line and points down, while the MACD, already in its negative territory, failed to cross above its trigger line, topped and show signs of turning down again. These momentum indicators show a weak upside pace and amplify the case that the advance following the gap lower may have come to an end. I would expect the pair to decline again and challenge the 0.7000 (S2) support area in the not-to-distant future. On the daily chart, I would expect a decisive break below the 0.7000 (S2) line to turn the picture negative again.

• Support: 0.7055 (S1), 0.7000 (S2), 0.6950 (S3)

• Resistance: 0.7080 (R1) 0.7130 (R2), 0.7160 (R3)