EUR/GBP trades below the 0.8800 handle ahead of UK’s inflation on Wednesday

The next market-mover is likely going to be the UK’s inflation data on Wednesday.
The Bank of England (BoE)’s policymakers comments earlier in the day were rather dovish as the BoE remains data dependent for further rate hikes.

Flavio Tosti Independent Analyst

The EUR/GBP currency cross is trading at around 0.8770 down 0.13% this Tuesday.

The EUR/GBP will likely take its cue from the UK data on Wednesday with the Consumer Price Index (CPI), Retail Price Index and Producer Price Index (PPI) for the month of April. As the BoE is data-dependant a stronger than expected reading in inflation should support the British pound against the euro.

Earlier in the European session, the Bank of England’s officials testified on the economic and inflation outlook before the Parliament’s Treasury Select Committee (TSC). Without any surprises, the comments were rather dovish and cautious. Indeed, BoE’s Governor Carney said that it is "right to wait for more data" and that “households, businesses understand that rates are likely to rise at a gentle pace” as well as “guidance BoE gives is conditional on the economic outlook” he also added. What this means is that the BoE is data-dependant for further rate hikes decisions, that is why Wednesday's inflation data is likely going to be rather important.

Meanwhile, the complex political situation in Italy looms in the background for the euro currency. In fact, the main Italian stock-market index (FTSE MIB) gapped down this Monday while the Italian 2 year debt yield rose to their highest level since 2015.

Traders will also look on Wednesday at the preliminary Eurozone and German Markit PMI (Purchasing Managers' Index) monthly Composite, Manufacturing, and Services reports for May as well as the preliminary German Gross Domestic Product for May as well. A better-than-expected reading can somewhat support EUR.

EUR/GBP 4-hour chart

The EUR/GBP currency cross trend is rather neutral as it is pinched between the 100-period and 200-period simple moving average (SMA) on the 4-hour time-frame. Supports are priced in at 0.8740 demand zone and at 0.8712 swing low while resistances are seen at the 0.8789 high of the day and at the 0.8844 swing high.

Author

Flavio Tosti

Independent Analyst

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