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The EUR/GBP currency pair is entering an action-packed 24 hours. Earlier today, traders received Service PMI data from both regions, with the UK Services PMI report coming in slightly above expectations at 58.2 vs. 58.0 eyed (58.3 last month) and Eurozone Services PMI also beating expectations at 52.6 against an anticipated print of 51.7 (51.7 previously as well). While both reports came in strong, the growth rate in the UK continues to clearly outpace mainland Europe.
With the PMI reports now behind us, traders will start to look ahead to tomorrow’s dual central bank meetings for the next catalyst. Neither central bank is expected to make any big changes, though a minority of analysts (26 out of 78 in a recent Reuters poll) expects the European Central Bank to cut rates nominally. As my colleague Kathleen Brooks outlined in our ECB preview yesterday, we do not anticipate a token rate cut from the ECB; instead, we believe that traders will focus on the release of the central bank’s forecasts for 2016, including the forecasts for inflation, which ECB president Draghi recently labeled as “way below” the ECB’s target. While we don’t anticipate major fireworks, EUR/GBP traders should stay nimble in case we do get a surprise.
From a technical perspective, the EUR/GBP is primed for a potential breakout this week. As the chart below shows, the pair remains within a bearish channel that has guided rates lower since late October. More immediately, the pair is consolidating within a symmetrical triangle pattern in the lower-.8200s. This pattern is analogous to compressing a coiled spring: as the range continues to contract, energy builds up within the spring. When one of the pressure points is eventually removed, the spring will explode in that direction.
In addition to the symmetrical triangle forming in price, the pair’s RSI indicator is also forming a symmetrical triangle. In these cases, a breakout in the indicator can often foreshadow a breakout in price itself, potentially giving attentive traders an advanced warning of a likely breakout.
Given the bearish channel and continued outperformance of the UK economy, traders may be favoring a downside break in EUR/GBP. If we see the pattern break to the downside, bears may initially look to target support at the 61.8% Fib retracement of the late 2012/early 2013 rally at .8160; this level also marks a 14-month low in the pair. A drop below .8160 could expose the .8100 handle or the bottom of the channel in the upper-.8000s next. On the other hand, a bullish breakout through both the symmetrical triangle and bearish channel may target previous resistance at .8340, the .8400 round handle, or even the 200-day MA around .8430 as we move through the month.
- Fxstreet
With the PMI reports now behind us, traders will start to look ahead to tomorrow’s dual central bank meetings for the next catalyst. Neither central bank is expected to make any big changes, though a minority of analysts (26 out of 78 in a recent Reuters poll) expects the European Central Bank to cut rates nominally. As my colleague Kathleen Brooks outlined in our ECB preview yesterday, we do not anticipate a token rate cut from the ECB; instead, we believe that traders will focus on the release of the central bank’s forecasts for 2016, including the forecasts for inflation, which ECB president Draghi recently labeled as “way below” the ECB’s target. While we don’t anticipate major fireworks, EUR/GBP traders should stay nimble in case we do get a surprise.
From a technical perspective, the EUR/GBP is primed for a potential breakout this week. As the chart below shows, the pair remains within a bearish channel that has guided rates lower since late October. More immediately, the pair is consolidating within a symmetrical triangle pattern in the lower-.8200s. This pattern is analogous to compressing a coiled spring: as the range continues to contract, energy builds up within the spring. When one of the pressure points is eventually removed, the spring will explode in that direction.
In addition to the symmetrical triangle forming in price, the pair’s RSI indicator is also forming a symmetrical triangle. In these cases, a breakout in the indicator can often foreshadow a breakout in price itself, potentially giving attentive traders an advanced warning of a likely breakout.
Given the bearish channel and continued outperformance of the UK economy, traders may be favoring a downside break in EUR/GBP. If we see the pattern break to the downside, bears may initially look to target support at the 61.8% Fib retracement of the late 2012/early 2013 rally at .8160; this level also marks a 14-month low in the pair. A drop below .8160 could expose the .8100 handle or the bottom of the channel in the upper-.8000s next. On the other hand, a bullish breakout through both the symmetrical triangle and bearish channel may target previous resistance at .8340, the .8400 round handle, or even the 200-day MA around .8430 as we move through the month.
- Fxstreet
