EUR/GBP Price Setup: Bearish Signals Remain Despite Bailey's Dovish Remarks
Key Talking Points:
- ECB acknowledges improving conditions
- Andrew Bailey continues to assure inflation will be transitory
- EUR/GBP trades back in range with risks tilted to the downside
EUR/GBP is undoing yesterday’s gains as the pair continues to find resistance just above 0.8610. The focus today is going to be on US jobs data and there is likely to be increase volatility in US pairs, but EUR/GBP may also catch some tailwind moves on the back of it.
On the euro side, ECB resident Christine Lagarde has said that the rapid vaccination program in the Eurozone has allowed for a more favorable outlook by reducing more severe scenarios, which has underpinned euro performance as this increases the likelihood that the ECB may start talking about tapering sooner than expected. The economic data for the block is also showing improvement with the unemployment rate dropping to 7.9% in May, its lowest level in a year. The PMI data is also showing that sentiment is improving.
Meanwhile, Bank of England Governor Bailey said yesterday that inflation is still expected to be transitory but the bank is ready to act if there are signs that price pressures are not easing. This was on the back of departing chief economist Haldane saying that inflation could rise to 4% by year-end. Bailey’s continued dovish remarks may be weighing on the pound as the Delta variant continues to spread across the UK.
EUR/GBP Daily chart
EUR/GBP has attempted to break a two-week downtrend but has found resistance at the 100-day moving average (0.8612), which is at the center of a two-month range. The 50-day MA has crossed below the 100-day MA so there are signals that bearish momentum could resume. The stochastic oscillator is also supporting this view as the line drops towards 60, with plenty of room for a further pullback before we see oversold conditions.
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
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