The EURGBP rose by +0.16% on Monday following BoE Governor Bailey’s speech. The Pound was downbeat as investors priced in a softer tone on monetary tightening by the BoE. Although 65% of money markets are pricing a 50bps hike on the next BoE meeting, there remains a 35% chance of a 25bps hike which could increase as UK inflation data is set to drop to 10.5% from a previous reading of 10.7%.
Fundamentals from the Eurozone are forecasted to improve giving EURGBP buyers support in the near term. The German ZEW Economic Sentiment for January is expected to rise to -15.0 against the previous reading of -23.3 while the Eurozone ZEW Economic sentiment for January is forecasted to rise to -14.3 against -23.6 previous. Higher than-expected readings could boost buyers and a possible break above the 0.8870 level may be witnessed.
However, the UK’s labour data due for release early Tuesday morning could provide a clearer picture of the economy amidst months of strikes that have caused widespread disruptions. The Average Hourly Earnings Index+ Bonus is expected to rise to 6.2% from a previous reading of 6.1% which could cause the pound to regain its strength.
Traders should pay close attention to UK’s PPI data and inflation print scheduled for release early Wednesday morning. Eurozone inflation data will also be a key event to look out for as ECB doubles down on further tightening in the near term.
Weekly Chart Analysis
The EURGBP extended gains for the 2nd week after bouncing off the 0.877000 support level, a 4-week low and upside gains are capped by the 0.9000 psychological level. The MACD indicator Volume Bars are currently trading above the 0.000 neutral level suggesting a strong bullish bias in the near term. A break above the 0.9000 level could reinforce the bullish outlook and the next barrier is at 0.93000, a level last seen in March 2020.
However, a break below the 0.8770 level coinciding with a Bollinger band Baseline could cause a short-term retracement towards the 0.8550 level. A failure to defend the 0.8550 level could invalidate the current outlook and bears could take over the trend.
The ActivTrader Sentiment tool suggests that 69% of Retail Traders are bearish on the EURGBP pair. The sentiment could be largely influenced by EURGBP trading at 3-month high and retail traders expect near-term price retracements.
However, the week is yet to unfold as the focus shift to UK Jobs data and inflation data. The employment data and inflation report could provide clear sailing for traders as BoE’s softer sentiments remain in the limelight. Moreso, a release of German CPI data and Eurozone CPI could fuel Euro strength as inflation is forecasted to remain the same.
Daily Chart Analysis
The EURGBP recovered Friday’s losses as bulls attempt another challenge at the 0.8870 resistance level, a 3-months high. A break above that level could reinforce the bullish outlook and the next key resistance is at 0.9000 psychological level. The pair could trade higher if bulls manage to defend the 0.8800 level which coincides with the Williams Alligator moving averages, used as dynamic support and resistance tools. There is still room for bullish movement as the RSI indicator shows the market is not yet in an overbought zone.
However, a failure to break above the 0.8870 level could see the pair retreat towards the 0.88000 support. A break below the 0.88000 near-term support could trigger selling pressure on the EURGBP pair and the next key support will be the 0.87000 and 0.8550 levels a 4-months low.
