EUR/GBP is currently consolidating just below the 0.8715 level after a sharp intraday upside surge earlier today. The currency pair opened the week down slightly, near the 0.8710 level. Analysts consensus indicates that EUR/GBP will fall in the near future. This is following a crash through a major support, an ascending trendline that was formed off last week’s lows. This key technical shift implies that bullish momentum is starting to fizzle as price now hangs around important support levels.
Additionally, the upcoming week brings some important economic data that may determine whether EUR/GBP continues rising, or begins to turn back down again. The upcoming PMI data, particularly the manufacturing PMI, will be under close watch from investors. They would like to hear from the European Central Bank (ECB) commentary to see if the euro area can keep the momentum above the important 50 level. The price action we are seeing today tells us that the market participants have a laser focus on these evolving situations.
Technical Indicators Signal Downward Momentum
Currently, EUR/GBP is trading just above that at roughly 0.8710 which is in-line with its previous swing low. The recent price action pushed the currency pair under the 30-period Weighted Moving Average (WMA). This makes the overall continuing downward trend all the more funny. Its rise has alarmed traders as to the short-term sustainability of any bullish recovery, given the possibility of a bearish divergence.
The 61.8% retracement of the 2018 to 2020 downtrend at 0.8712 has developed into recent near-term resistance turned support. This line will be key for any future recovery. If the price manages to recover past 0.8716 then it would indicate that bullish traders are attempting to reassert their control. On the flip side, if the pair is unable to stay above this significant mark, it could push EUR/GBP lower in the future.
We have been encouraged by the level of support so far. The next major Fibonacci retracement level looms at 0.8712, followed by 0.8710, 0.8709 and 0.8705. A particularly firm close under 0.8709 would open the door for a push into the 0.8705 area. This movement would establish additional downside correction in the currency pair.
Market Focus on Upcoming PMI Data
This week it’s all about the PMI suite dropping starting Monday. The PMI indicators will serve as an important lifeline gauge for economic conditions across the Eurozone. Together, they’ll provide essential clues to the bloc’s chances of continuing to build on its impressive momentum. Any number over 50 is usually interpreted to mean expansion and any number under 50 means contraction.
Traders are especially focused on what these indicators mean for the ECB’s future policy direction. If the PMI data does indeed point to strong economic activity, this may provide some humour for the euro and help it climb against the pound. On the other hand, any data disappointments could strengthen bearish EUR/GBP sentiment and lead to even deeper losses.
The Money Flow Index (MFI) for EUR/GBP is presently 24.5—an extreme oversold signal on the MFI indicating an oversold market. Given such a low reading, there is plenty of room for a rebound. The overall configuration is decidedly bearish in the short term. These technical indicators are now aligning with fundamental divergences, which will only make recovery efforts more complicated.
Implications of ECB Commentary
In addition to PMI data, commentary from the ECB will play a pivotal role in shaping market sentiment regarding EUR/GBP. As traders await insights on monetary policy and economic outlook, any signs of dovish or hawkish stances could provoke significant volatility in the currency pair.
If ECB officials deliver on the rosy, expect the euro to rise against the pound. Conversely, if they signal future tightening moves the euro could receive a much stronger boost. Caution would increase worries over the fragility of economic recovery across the Eurozone. This would be an additional bearish impetus for EUR/GBP.
EUR/GBP Resistance levels are well established at important junctures. These are the swing high at 0.8716, the upper Bollinger band at 0.8720 and the intraday high at 0.8725. These traces will be pivotal in determining whether or not bulls can reclaim control and reverse this new bearish wave. Additionally, they will show if the market will stay on its current downward course.