EUR/GBP is back to a level that had kept the bulls contained for most of 2021 and 2022.
How will the pair react to a retest this week?
I’m looking at the daily chart for clues.
In case you missed it, the U.K.’s government spooked the markets weeks ago when new U.K. PM Liz Truss announced a “mini” fiscal plan that involved cutting taxes worth 45 billion GBP over the next five years.
Markets did NOT like the plan mainly because (a) it wasn’t clear where the government would get its budget and (b) it goes against the Bank of England’s (BOE) goal of controlling short-term inflation.
The pound quickly and dramatically lost pips across the board. EUR/GBP, in particular, shot up above .9200 before slipping back down below .9000 after a few days.EUR/GBP is now trading closer to .8650, which lines up with a range resistance that had kept the bulls from gaining momentum for most of 2021 and 2022.
Will the resistance zone serve as support this week?
Stochastic is on the bulls’ side with an oversold signal.
Ditto for the 100 and 200 SMAs, which saw a bullish crossover in July and is currently widening its gap (read: turning more bullish) on the daily time frame.
This week’s CPI reports and central bank speculations might help sway EUR/GBP bulls and bears.
The U.K. is expected to print a 9.9% consumer price growth in September, which would strengthen BOE Governor Andrew Bailey’s recent hints that “…as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
Meanwhile, the Eurozone is set to confirm a 10.0% CPI for the month of September. A faster-than-expected price growth would support another 75 bps European Central Bank (ECB) interest rate hike in December.
Watch out for momentum above the .8650 zone which could take the pair to its .8900 or even .9000 previous highs.
Of course, a clear break below the .8650 support would hint that GBP’s strength last week still has legs. EUR/GBP bears could drag the pair to its .8500 mid-range levels!
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.