Higher EU Q4 GDP Prompts Bullish EUR/GBP, But Sellers Return
EUR/GBP has followed a constant bearish since it reversed lower in the last few days of 2023, losing nearly 200 pips in the process. Moving averages have been providing resistance during bullish attempts, continuing to push the highs lower and the 50 pip jump we saw yesterday failed at this moving average once again.
On Monday morning this forex pair opened with a bearish gap lower, slipping to 0.8513 with the H4 chart showing that sellers appear to have a solid grasp on the price, with lows continuing to move lower. This pair was oversold in the H4 timeframe, so a bounce was due to refresh the trend. Now that the trend is refreshed, this pair has the potential for further downside.
From a fundamental perspective, EUR/GBP is under strong selling pressure due to divergent monetary policy tones from both central banks. The European Central Bank (ECB) has increased the rate cut rhetoric, which is a bit of a surprise given that they were pushing back with all force. Yesterday, ECB’s Nagel noted that inflation is clearly heading in the correct way, while Makhlouf added that they are confident in hitting the 2% inflation objective. This shift in the ECB rhetoric has turned the odds upside-down for the Euro.
As a result, tomorrow’s Eurozone inflation report for January is vital for the Euro. Core CPI Flash Estimate YoY is expected to continue declining to 3.2% in January from 3.4% in December, while headline CPI is expected to fall to 2.7% from 2.9% previously. This would weigh the Euro further down, as divergences between two central banks may widen, which would put more pressure on the cross.
After today’s FOMC decision which will likely affect the price action in this pair as well, investors will pay particular attention to the Bank of England (BoE) decision tomorrow. They are expected to hold interest rates unchanged at 5.25%, so the statement and press conference will be crucial to watch. Markets are not expecting the BOE to declare the beginning of rate cuts soon, but the space in between the comments will make the difference. So, we will follow this press conference closely.
EUR/GBP Live Chart
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