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EUR to GBP Higher on Disappointing UK CPI; Tests Critical Support Ahead of ECB


EURGBP rose in yesterday’s trading following the disappointing inflation report from the UK. The currency pair rose to an intraday high of 0.8576 from 0.8535 after the headline CPI figure for December came in at 1.3%. The forecast was at 1.5% and the miss translated to a 3-year low for UK inflation. Meanwhile, the core CPI which excludes volatile items printed at 1.4% versus the 1.7% consensus.

The report was bearish for the British pound because it led to speculations that the BOE would be more inclined to cut rates following it. Remember that a BOE member expressed her intention of voting for a rate cut in an upcoming meeting last weekend. Softer inflation in the UK only affirms this view even more.

Will the EUR to GBP extend its rally?

Today, at 12:30 pm GMT, the ECB meeting minutes is due for release. It will also be followed by a speech by ECB President Lagarde at 6:00 pm GMT. More hawkish or optimistic comments from ECB officials will be bullish for the currency pair. On the other hand, concerns about the economy or hints about a rate cut could drag down EURGBP.

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EUR to GBP Outlook

On the hourly chart, we can see that EURGBP is currently testing support at its January 3 and January 6 highs. This price, 0.8550, also coincides with the area between the 38.2% and 50% Fib levels (when you draw the Fibonacci retracement tool from the low of January 10 to the high of January 14). As of this writing, the currency pair seems to be trading below support at the 100 SMA. However, it’s worth noting that EURGBP has some room to move lower and still maintain its uptrend. By connecting the lows of January 8 and January 10, we can see that EURGBP may bounce off support at 0.8535.

A bearish close below this level, on the contrary, could mean that the currency pair could fall to its January 10 lows at 0.8480.