Euro, British Pound, EUR/GBP, ECB, BoE, Inflation, Technical Analysis – Analyst PickEuro rose against the British Pound last week, is momentum stalli
Euro, British Pound, EUR/GBP, ECB, BoE, Inflation, Technical Analysis – Analyst Pick
- Euro rose against the British Pound last week, is momentum stalling?
- There is more room to build up ECB hawkish bets compared to BoE
- EUR/GBP 4-hour chart trendline breakout and Golden Cross eyed
Fundamental Analysis
The Euro could be readying to extend recent gains against the British Pound. Last week, a notable hawkish pivot from the European Central Bank offered the single currency some strength. This included against the British Pound. That is not to say that the latter did not find some support either. For Sterling, the Bank of England delivered a 25-basis point rate hike.
The latter was as expected, but the ECB’s change in rhetoric was not. Arguably, the ECB is one of the more dovish central banks compared to its G-10 peers. But even the ECB has been starting to acknowledge the rising inflationary pressures that the Euro area is facing. In January, headline CPI clocked in at 5.1% y/y versus 4.4% anticipated. The core gauge clocked in at 2.3% y/y against 1.9% estimates.
Recently, ECB Chief Christine Lagarde noted that the risks to the inflation outlook are ‘tilted to the upside’. She did mention though that their March projections will offer a better judgement. ECB policymaker Francois Villeroy did mention that the market last week might have been ‘too strong’. Markets are pricing in at least 40 basis points of tightening through the end of this year.
The BoE has had a head start to its tightening cycle, with the benchmark lending rate sitting at 0.5% after last week’s hike. Overnight index swaps are pricing in five more to come by December. With markets already pricing in an aggressive BoE, this could leave more room for traders to bid up ECB hawkish bets should inflation continue rising. That could offer further upside potential for EUR/GBP.
EUR/GBP Versus German-UK 10-Year Government Bond Yield Spreads
Chart Created in TradingView
EUR/GBP Technical Analysis 4-Hour Chart
On the 40hour chart, EUR/GBP bounced off the 0.8276 – 0.8294 support zone last week. This range is made up of lows from 2020. In fact, the pair was struggling to pierce this zone as positive RSI divergence formed. The latter is a sign of fading downside momentum.
The pair also confirmed a breakout above a near-term falling trendline from December. However, prices struggled to pierce the 61.8% Fibonacci retracement at 0.8479, making for key resistance. Still, a bullish Golden Cross between the 50- and 200-period Simple Moving Averages are now in play.
The latter could offer key support in the event EUR/GBP succumbs to near-term selling pressure. Clearing the 61.8% retracement exposes the 0.8553 – 0.8538 inflection zone before setting course to target the December peak at 0.8599. Clearing 2020 lows likely opens the door to downtrend resumption.
Chart Created in TradingView
— Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
element inside the
element. This is probably not what you meant to do!Load your application’s JavaScript bundle inside the element instead.
www.dailyfx.com