EUR/GBP Down After UK Inflation, Awaits Central Banks


UK Inflation

Data released this morning from the Old Albion, showed that headline Consumer Price Index (CPI) surged 5.1% y/y in November, compared to 4.2% in October.

This is way higher than the central bank's 2% target, but also far ahead of its projections. Based on its last Monetary Policy Report, the Bank of England (BoE), expected CPI Inflation to hit the 5% mark in April 2022. [1]

The Core annualized CPI jumped 4%, compared to 3.4% prior.

On the Producer side, headline PPI output showed growth of 9.1% y/y, up from 8.6% in October 2021. Headline PPI input grew 14.3% y/y, up from 13.7% last month.

Central Banks

Today, markets brace for the Fed's monetary policy decision, but on Thursday, focus will shift to the Bank of England (BoE) and the European Central Bank (ECB).

The BoE had surprised many investors with November's decision not to increase rates, despite commentary that pointed towards such a move. Omicron complication and some recent dovish comments, have made markets cautious this time around.

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The ECB on the other hand, is far on the dovish side of the policy spectrum, but markets will be looking for any commentary/decisions around the future of its asset purchase programs and the updated economic projections.

The ECB runs two such schemes: the Pandemic Emergency Purchase Programme (PEPP) with a potential envelope of €1,850 billion and a horizon until March 2022 and the much smaller €20 billion/month Asset Purchase Programme (APP).

EUR/GBP Analysis

The pair drops to new December lows, following UK's CPI jump, which make it vulnerable 0.8445-31. Furthermore, the pair has formed a bearish Head and Shoulders formation and daily closes below the neck-line (black line) can provide confirmation and bring 0.8379 into the spotlight, with caution for pulls back needed.

Past Performance: Past Performance is not an indicator of future results.

On the other hand, the Relative Strength Index (RSI) shows oversold conditions and the Euro has the ability to react higher. The broader 0.8530-51 region however, poses strong roadblocks, since it contains the EMA100, the descending trend-line from this month's high and the weekly highs. As such, a catalyst will be required for a break, that will put the common currency at the driver's seat and allow it to look again towards the 0.8590-0.8600 area.

Past Performance: Past Performance is not an indicator of future results.

The technical image may be very interesting, but the main drivers for the movement of the pair are likely going to be the central banks' decisions, that have the potential to spur volatility and produce outsized moves.

Apart from that, the economic calendar features a plethora of economic releases this week.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.



Retrieved 30 Jan 2023


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