Skip to Content
News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

Free Trading Guides
Subscribe
Please try again
Select

Live Webinar Events

0

Economic Calendar Events

0

Notify me about

Live Webinar Events
Economic Calendar Events

H

High

M

Medium

L

Low
More View More
Short EUR/GBP: Euro Fundamentals Deteriorate Ahead of Central Bank Decisions

Short EUR/GBP: Euro Fundamentals Deteriorate Ahead of Central Bank Decisions

Share:

What's on this page

EUR/GBP Bearish Continuation

  • Euro zone fundamentals weaken: Technical recession confirmed, inflation data improving which helps build a case for a more dovish ECB to come
  • Markets anticipate another 100-bps worth of tightening from the BoE this year as inflation is way too high still at 8.7%
Traits of Successful Traders
Traits of Successful Traders
Recommended by Richard Snow
Traits of Successful Traders
Get My Guide

EU Fundamentals are Likely to Embolden ECB Doves

Downward revisions to both the Q4 2022 and Q1 GDP quarterly growth figures suggests the European economy is taking strain as financial conditions are set to tighten even further next week. With the euro zone in a technical recession and seeing core inflation head lower, bears within the ECB’s ranks may soon garner support from more hawkish governing council members when it relates to the path of future monetary policy. Furthermore, disappointing Chinese data has revealed that the reopening of its economy has not gone to plan – which has negative trade implications for Germany, Europe’s biggest economy.

On the other hand, the bank of England still sees inflation at 8.7% which is way too high but the good news is that they forecast the figure to drop quickly for the rest of 2023. Nevertheless. markets still anticipate as much as 100-basis points into year end which would place the bank rate at levels anticipated for the Fed at 5.5%. Such expectations are likely to support the pound in the interim.

Market Implied Probabilities of Future BoE Rate Hikes

image1.png

Source: Refinitiv, prepared by Richard Snow

EUR/GBP Technicals

EUR/GBP appears to be consolidating within a pennant formation which usually hints at a bearish continuation provided it is preceded by a downtrend. The death cross (blue line crossing below the red line) suggests a bias towards bearish moves. Should prices break below the pennant or even consolidate before regaining downside momentum, 0.8565 is the immediate level to watch, followed by 0.8515 and 0.8500 flat. The bearish bias would need to be reevaluated should prices breach 0.8650 and continue to produce a daily candle close above the zone around 0.8725 (orange zone). An additional risk to this setup is the nearness of the RSI to oversold territory. Therefore, a period of consolidation may be welcomed in this case.

EUR/GBP Daily Chart

image2.png

Source: TradingView, prepared by Richard Snow

EUR/GBP Bullish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -14% 12% 0%
Weekly -29% 61% 7%
What does it mean for price action?
Get My Guide

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES