EUR/GBP is in a sharp bullish correction in November after the pair formed a price bottom above 0.78 earlier in the month. The week started with the pair stalling at 0.80. If fell but found support at 0.7955, keeping the bullish stance. Then after some economic data out of the UK and the Eurozone, the EUR/GBP is cracking the 0.80 handle.
UK inflation data showed that annual CPI grew 1.3% in October, which was higher than the forecast and September’s reading of 1.2%. This stops a 4-month slide in inflation, which has forced the BoE to postpone its rate hike schedule.
German ZEW Economic Sentiment for November surprised, rising to 11.5 from -3.6 in October, beating forecasts around a 0.9 print. Eurozone’s ZEW Economic Sentiment improved to 11.0 from 4.1, beating forecasts around 4.3.
Bullish Reaction: Both data sets came in better-than-expected and both are against the prevailing trend of data that showed eroding inflation and sentiment. Whether the ECB will implement QE is probably the more significant factor at the moment for EUR/GBP. We can see that the reaction after the data set was bullish, and EUR/GBP is poised to break above 0.80. However, after a break above 0.80, we need to monitor a key resistance area for sellers.
(click to enlarge)
The daily chart shows the pair stabilizing in the past few months after falling most of the first half of 2014. Just above 0.88, we can see a major resistance area between 0.8033 and 0.8065. Here was have multiple support/resistance pivots as well as the 200-day SMA.
With the prevailing trend being bearish, we should expect sellers here for a dip towards 0.79. A hold above 0.79 would still maintain the price bottom dynamic especially if it follows a break above 0.8065. However, a break below it might revive the bearish outlook, especially if price hold below the 0.8033-0.8065 resistance area.
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