EUR/GBP may have further to slide

The Currency Pair of the Week this week is GBP/USD because of the reaction from the US Dollar to the recent inflation data. However, it could just have easily been EUR/GBP. The UK is releasing the Claimant Count this week, which will be the first look at jobs data since the furlong program ended on September 30^th. On Wednesday, the UK releases their inflation data and on Friday they release Retail Sales (See the Currency Pair of the Week for expectations). There is potential for a great deal of volatility in GBP this week. However, The EU will release CPI data of its own this week. This will be the October Final look. Remember that the EU releases its Flash CPI on the last day of the prior month. Therefore, this number should not add much volatility to the Euro unless there is a big difference between the flash reading and the final print. The flash reading was 4.1% YoY for the headline CPI vs 3.4% YoY in September. The Core CPI was 2.1% YoY vs 1.9% in September.

What is inflation?

The ECB met on October 28^th, a day prior to the flash inflation reading. Christine Lagarde told markets at the press conference afterwards that she expects PEPP to end in March 2022, as planned. However, she also said that higher inflation will last longer than expected and that conditions for a rate rise are not likely to be met in the timeframe expected by the markets, nor soon thereafter. Therefore, during the December meeting, at which updated growth and inflation forecasts will be released, the Committee will discuss new options for a bond buying program.

Trade EUR/GBP now: Login or open a new account!

One week later, the BOE met and left rates and their bond buying program unchanged, despite earlier comments from BOE Governor Bailey that they may have to raise rates in order to control inflation. GBP traders were upset with the meeting outcome and immediately sold the Pound.

EUR/GBP has been in a downward trend since December 2020. First it fell aggressively from 0.9200 to 0.8472 by April 5^th, then fell more orderly in downward channel from 0.8719 on April 16^th to the October 27^th lows at 0.8403. After the BOE meeting the pair bounced to trendline resistance at the top of the channel and the 200 Day Moving Average near 0.8574. However, the resistance held, and the pair sold off on Friday and Monday, as markets became fearful of high inflation data from the UK this week.

Source: Tradingview, Stone X

On a 240-minute chart, EUR/GBP is holding the 61.8% Fibonacci retracement from the lows of October 26^th to the highs of November 5^th, near 0.8476. The pair is also holding horizontal support at 0.8469. Below there, support is at the bottom of the channel near 0.8416 and then the lows from October 26^th, at 0.8403. First resistance is at a confluence of the 50 Day Moving Average and prior Intra-day lows between 0.8515 and 0.8520. Above there, resistance is at the top, downward sloping trendline of the channel near 0.8571 and then the highs from November 5^th at 0.8595.

Source: Tradingview, Stone X

Over the last 2 days, EUR/GBP has moved from a high of 0.8567 to a low of 0.8471, near 100 pips. With the upcoming economic data from the UK, combined with the lack of interest from the ECB to raise rates any time soon, EUR/GBP could become extremely volatile this week!

Learn more about forex trading opportunities.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.