EURGBP has come under renewed pressure today following economic releases out of the UK and the Eurozone. In addition, the technical outlook remains bearish and the pair looks poised for continued downside. Q3 GDP growth in the UK was confirmed at 0.8% q/q and 1.5% y/y. A revision higher in private consumption to 0.8% q/q from 0.3% and quarterly increase in business investment to 1.4% from -2.7% made up for a -2.4% decline in exports. Government spending was unrevised at 0.5% q/q.
In Europe, Spanish retail sales fell by -0.6% in October from a year and French consumer confidence surprisingly dropped to 84 in November from the prior 85. German consumer confidence rose to 7.4 from 7.1. European Central Bank policy expectations are also in focus amid reports that the Bank is weighing a new LTRO with conditions attached. Under such a program, banks would only be able to borrow under the condition that they pass the funds on to companies. There is also speculation that the ECB is considering negative deposit rates to incentivize banks to lend rather than pay to keep cash parked at the central bank. Given the improving economy in the UK and an anemic recovery in the Eurozone which may spur further easing by the ECB, the fundamentals suggest the potential for a continued decline in EURGBP.
Technically, EURGBP is trading within a bearish trend channel and the daily MACD indicator is showing downward momentum. We expect any rebound in the pair to be limited (with resistance levels noted below) while it is contained within the channel. As such, we would view strength as an opportunity to look for the downtrend to resume. A break above the top of the channel and 200-day simple moving average (SMA) would negate our long-term bearish bias. Some key levels to watch are:
Support
- 0.8300 – Nov low and 100-week SMA
- 0.8280/85 – base of weekly cloud
- 0.8220 – bearish channel base
Resistance
- 0.8425 – 55-day SMA and 23.6% Fibonacci retracement
- 0.8495 – 100-day SMA and 38.2% Fibonacci retracement
- 0.8515 – 200-day SMA and channel top
Source: eSignal and FOREX.com
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