EUR/GBP: the full load-down as bulls tamper with key swing high resistance

  • EUR/GBP: a choppy European session leaves the cross in a bullish position, but needs to break and close above 0.8782, horizontal swing high resistance.
  • EUR/GBP: all eyes will be turning to this week's key UK data releases, including UK CPI tomorrow.

EUR/GBP has traded in a 31 pip range on Tuesday so far, between a low of 0.8758 and a high of 0.8789. 

There have been a number of fundamental inputs into today's choppy price action with the Bank of England Governor Mark Carney, Deputy Governor Dave Ramsden and members of the Monetary Policy Committee Gertjan Vlieghe & Michael Saunders, all testifying on inflation and the economic outlook before Parliament's Treasury Committee. On mainland Europe, there have also been some jitters over the performance of the EZ while investors continue to monitor developments with respect to Italian politics. 

The main takeaway from the UK's inflation report hearing

The main takeaway from the UK's inflation report hearing is that the BoE will remain data dependent and that headwinds from Brexit will eventually fade, according to the MPC member Vlieghe. In respect to the dire performance of Q1, where the BoE failed to anticipate a floored economy meaning they had to backtrack their inflation expectations and hold on rates instead of hiking in May; Saunders argued that the weakness could be "revised away".

Cable rallied north from 1.3413 and up to threaten 1.35 on Vlieghe's hawkish steer who expects slightly more rate hikes from the BoE over the next 3 years than what markets did. If anything, the hearing has geared up markets for this week's key economic data with the UK CPI/inflation figures tomorrow followed by retail sales on Thursday, and the second reading of Q1 GDP on Friday - anything below inline readings will certainly be a kick in the teeth for trapped sterling bulls, especially if the FOMC minutes offer a hawkish bias this week.

European matters at hand

Across the channel, the euro has suffered the lowest levels since Nov 2017 down at 1.1716. The inflation trade and a very long speculative euro positing started to unwind in March which accelerated in April as dwindling expectations of any changes to the ECB's monetary policy weighed at the same as the dollar followed US yields higher, despite the US's protectionist trade policy. Markets had begun to react to the potential fiscal blowout from the tax-cutting right and welfare spending populist Italian coalition. Fitch warned yesterday that a new government would increase fiscal risks and the M5S-League accord's costly and eurosceptic government programme has also kicked investor confidence. 

However, today, the euro got a boost when Italian bond yields tumbled on the news that the new Italian government may find the EU obstacles to its spending plans too high, and that sent Italy's 10-year yields down 9bp on the day - EUR/USD made a high of 1.1830 in European trade, sending the cross to 0.8789 the high; (EZ PMI will be crucial this week). At the time of writing, EUR/GBP is trading at 0.8770, grappling with a cluster of hourly MAs and the convergence of the 10 and 21-D SMAs as bulls hit a wall in the recovery attempt for territory back in the rising channel.  

Related headlines for EUR/GBP:

  • EU's Malmstrom thinks U.S. considers EU trade proposal insufficient.
  • Liikanen: Eurozone underlying inflation needs time to rise.
  • German economy still booming but has lost some momentum - Bundesbank.
  • General Election risk influenced the drop to 1.3392.  
  • EU's Barnier: Can't guarantee Brexit deal by October; No Brexit deal if no agreement on Irish border.
  • Boris rules out snap election - Express.

EUR/GBP levels

EUR/GBP  is challenging the moving averages once again with attempts back towards the key rising channel. However, the bulls need to break and close above 0.8782, horizontal swing high resistance at 0.8782 first, (61.8% Fib retracement and extension, coinciding with the ascending support turned resistance line. 0.8799 (100-D SMA) and then 0.8820 are the next key resistance that guards the 200-D SMA at 0.8863. 0.8620 guards a run towards 0.8526 as being the 78.6% retracement of the move from 2017 on the wide.


 

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