This week has been a rollercoaster for the EURGBP currency pair, marked by shifts in market expectations fuelled by the UK inflation report. The report, revealing year-over-year inflation of 3.9%, surprised many by coming in below the consensus of 4.4%. This unexpected figure led to speculations about potential interest rate cuts by the Bank of England in the early months of the upcoming year.
However, the intrigue continued on Friday with additional data. Despite the UK’s year-over-year GDP growth matching consensus at 0.6%, an upside surprise came from retail sales, surpassing expectations at 0.1%. This marked a notable improvement from the previous -2.5% and exceeded the consensus of a -1.3% prediction. As the week concludes, the Pound may draw strength from this data, setting the stage for a tug-of-war between conflicting signals in the market.
Technical
An ascending channel has formed on the 4H chart, with the dynamic resistance preventing sustained upside in the recent sessions. The shorter-term 25-SMA (green line) and 50-SMA (blue line) trends above the 100-SMA (orange line), confirming the presence of buyers, but strong resistance at the 61.8% Fibonacci golden ratio of 0.8683 presents a strong hurdle to the bullish momentum.
If this resistance holds, the currency pair could look for support at 0.8658, the Fibonacci midpoint. The 25-SMA is established not far below, at 0.8646, and could prevent the currency pair from falling toward the channel support at 0.8629, where a breakdown could occur. In this case, the bears could look toward 0.8601 as a potential level of interest.
However, if the resistance at 0.8683 fails to withstand the buying momentum, a psychological supply zone near 0.8703 could become a pivotal level. While a retracement is possible here, an additional leg higher could set the currency pair up for convergence with higher resistance at 0.8726.
Summary
After a slew of data releases, the EURGBP currency pair finds itself up almost a percent for the week, as the British Pound lost some ground. Resistance at 0.8683 could now be a level to watch as the week comes to a close to gauge whether the current bullish momentum will be sustained.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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