EUR/GBP: capped ahead of 0.8980, eyes on 0.9026/34 sits the 61. 8%?

  • EUR/GBP set on fire fundamentally on data.
  • EUR/GBP breaks out of techncial consolidation with 10/21 SMA hourly bullish cross over. 

EUR/GBP has picked up the pace on Tuesday, rising in a technical bid within the 21 and 10 hourly SMA's cross after a break out of the consolidation phase around 0.8880 support while fundamentals lean bullishly. Currently, EUR/GBP is trading at 0.8959, up 0.77% on the day, having posted a daily high at 0.8977 and low at 0.8889. "EUR/GBP is fighting adverse relative rate trends, but the UK news flow remains dire," argued Kit Juckes, an economist at Societe Generale. 

EUR rides high after German GDP - BBH

In terms of data, slightly below expectations UK CPI, (arriving at 3.0%, the market consensus looks for a pick-up to 3.1% from 3% with the core at 2.8% from 2.7%), coupled with upbeat German flash Q3 GDP figures and EMU’s economic sentiment for the current month, (30.9 vs 29.3 expected), set the cross on fire as German bund yields firmed. The 10-year benchmark climbed above 0.43% recording at fresh 3-week highs overnight. 

GBP/USD struggles to extend recovery beyond 1.3100 handle

UK inflation peaked?

Analysts at ING Bank offered their comments after the CPI miss, suggesting that UK inflation has peaked. "Over coming months, we expect headline CPI to trend lower, reaching the 2.3/2.4% area by Easter time. As the currency effect starts to peter out, the question is whether domestically-generated price pressures start to take over. 

We'll get some indication of this in tomorrow's jobs report, where we see a slight risk of a disappointing wage growth figure. As we head into 2018, the Bank of England remains relatively optimistic that pay rises will pick-up a notch. But given political uncertainty, rising import costs and slow growth, we think the Bank's 3% forecast for next year could prove to be optimistic. We don't rule out a rate hike in 2018, but Brexit negotiations will be a big determining factor and there are a lot of hurdles to overcome over the next few months."

UK: Unchanged reading of headline and core CPI - BBH

EUR/GBP levels

"EUR/GBP has eroded the short-term downtrend and rallied to 0.8920, the 55 day ma. This should act as the break up point to the 0.9034 12th October 2017 high, where we suspect that it will struggle," explained analysts at Commerzbank.

"Last week we saw the market chart a strong rebound from major support band, namely the 200 day ma at 0.8771, the September low at 0.8746 and the 55 week ma at 0.8720. Below 0.8720 would target the 0.8530/78.6% retracement of the move seen this year. 0.9026/34 sits the 61. 8% Fibonacci retracement at 0.9093 and the mid-August high at 0.9145," the analysts at Commerzbank argued further. 

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