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EURGBP: EUR to GBP Forms Inverse H&S After Weak UK GDP Data


The EUR to GBP (EURGBP) pair is up by more than 0.30% as traders react to the disappointing economic data from the UK. It is trading at 0.8935, which is the highest it has been since Tuesday this week.

UK Q3 GDP disappoints

In my earlier UK Q3 GDP preview, I predicted that the British pound would weaken if the numbers disappointed. That has turned to pass and the currency has weakened against the dollar and euro.

According to the ONS, the UK economy expanded by 15.5% in the third quarter. That was a significant improvement from the second quarter’s record decline of 19.8%. But this number was lower than the consensus estimates of 15.8%. On an annualised basis, the UK economy contracted by 9.6%, worse than the expected decline of 9.4%.

Another data showed that the UK’s manufacturing and industrial production increased by just 0.2% and 0.5% in September. Again, that was lower than the consensus estimates of 1.0% and 0.8%, respectively. These numbers hint that the UK economy is not recovering as fast as what analysts were expecting.

Also, there is a ray of hope as the country’s housing sector is relatively robust. Earlier today, data from RICS showed that the house price index climbed to 68%, the highest it has been on record. This, together with the impressive earnings by Persimmon and Taylor Wimpey, are evidence that the sector is relatively strong. But, RICS warned that 2021 could slow down as governments’ incentives end.

The EURGBP pair is also reacting mildly to the mild inflation data from Germany. Data from Destatis showed that the consumer price index (CPI) was unchanged at 0.1% in October, pushing the annual rate to minus 0.2%. The harmonised index of consumer price was also unchanged at -0.5%.

Later today, the EUR to GBP price will react to the ECB annual meeting, where Christine Lagarde and Andrew Bailey will talk.

EURGBP technical outlook

On the hourly chart below, we see that the EURGBP pair has moved upwards in the past two days. Precisely, it has risen by almost 1% from yesterday’s low of 0.8860. Notably, the pair has managed to move above the 50-day exponential moving average. It has also formed an inverse head and shoulders (H&S) pattern.

Therefore, I predict that, for today, the pair will continue rising as bulls aim for the next resistance at 0.8960. On the flip side, a move below 0.8900 will invalidate this trend.

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EUR to GBP technical chart


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