EUR/GBP sub-0.8740 waiting for EU and UK key data

• The EUR/GBP is slowly drifting down but the range remains very narrow suggesting that investors are waiting for more information. 
• Next key event in line is the ECB rate decision on Thursday which is widely expected to leave rates on hold.  

The EUR/GBP is trading at around 0.8735 down 0.18% on Wednesday mid-US session.

The EUR/GBP is slowly sliding down for the third day in a row as market participants are waiting for key macroeconomic data before stirring the cross in one way or the other. 

Looking ahead, Thursday will see the most important European Central Bank (ECB) rate decision at 11:45 GMT. The ECB Governing Council is widely expected to leave rates unchanged. The Eurozone inflation rose 1.3% over the year to March, up from 1.1% in February, but the core inflation stayed at 1.1% over the year to March. The recent Eurozone inflation data is still well below the ECB’s target of 2% and this should keep the ECB rather dovish and cautious. The recent Eurozone and German composite purchasing managers’ index (PMI) came in mixed in April while the German ZEW survey, which gauges investors confidence, tanked to -8.2 in April from the 17.2 seen in February. Basically, the ZEW was sitting at levels not seen since July 2016 this February and then dropped into negative territories in merely two months, which is far from being a positive omen.

On the other hand, the pivotal event for Sterling will be the release of the Gross Domestic Product on Friday. Investors have been dumping the pound as key macroeconomic data compounded by dovish rhetoric from Bank of England officials shed doubts as to whether the Bank of England can really justify a rate hike on May 10. A deviation to the downside in the UK GDP will likely not be tolerated by traders as the odds of a rate hike would become too slim at that point. 

EUR/GBP technical outlook:

“No change, EUR/GBP held sideways to leave the view unchanged. Last week broke down from the base of its range and fell to its current April low at .8620 before rising again”.

“Rallies will find initial resistance at the late March and current April highs as well as the 55-day moving average, at 0.8795/0.8801, key resistance is the 200-day MA at 0.8883. While capped here we will continue to target 0.8526, the 78.6% retracement of the move from 2017. En route is a support line at 0.8582”.

“Above 0.8884 would allow for a recovery to the 0.8969 recent high and the 0.9034 October 2017 high”.

Explains Karen Jones, Head of FICC Technical Analysis at Commerzbank.