EURGBP has been trending higher on its 4-hour time frame, moving above an ascending trend line connecting the latest lows of price action. Price hit resistance at the .8100 major psychological level before showing signs of a pullback.
Drawing the Fib tool on the recent swing low and high shows that the 61.8% Fib lines up with the trend line just above the .7900 major psychological mark. This is also near an area of interest or former resistance level, which might hold as strong support, and the 100 SMA.
Speaking of moving averages, the 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside. If any of the Fib levels hold as support, EURGBP could make its way back up to the previous highs and beyond. Meanwhile, stochastic has just reached the oversold territory and is starting to turn higher while RSI is also indicating a return in bullish pressure.
Event risks for this setup include the UK CPI release. Analysts are expecting headline CPI to hold steady at 0.3% and core inflation to rise from 1.2% to 1.3%. Inflation components such as PPI, RPI, and HPI are also likely to post gains. However, weaker than expected results could allow this pair to pop up from the current .8000 area back to .8100.
Another potential catalyst is the BOE statement on Thursday. No actual policy changes are expected, as the central bank is likely to maintain interest rates and their pace of asset purchases, but traders will pay close attention to any changes in rhetoric. Data from the UK has been mostly weaker than expected for the past few weeks, which might merit a dovish bias from the UK central bank.
As for the euro, there are no major events lined up for this week but the previously released ECB meeting minutes did indicate that there’s scope for further easing if necessary.
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