EUR/GBP All Set for a Bearish Setup 0.8544, UK Inflation Figures in Focus
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- EUR/GBP fell for the second day in a row on Friday, as Brexit tensions eased through talks that will continue next week.
- UK prelim GDP for the quarter from Britain dropped to 1.3%, against the projected 1.5%.
- EUR/GBP is trading at 0.8528, having violated the symmetrical triangle pattern at 0.8544.
The EUR/GBP closed at 0.8532 after reaching a high of 0.8565 and a low of 0.8525 on Friday. On the 4-hour timeframe, the EUR/GBP price forecast seems bearish as it has already violated the symmetrical triangle pattern. For now, the major focus will remain on the UK Inflation figures on Wednesday.
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EUR/GBP under pressure amid Brexit tensions
The EUR/GBP fell for the second day in a row on Friday, as Brexit tensions eased through talks that will continue next week. The UK Brexit Minister, Lord David Frost, and the Vice President of the European Commission, Maros Sefcovic, said the discussions regarding the implementation of the Northern Ireland Protocol would continue next week and focus on medicine and customs. Sefcovic also noted that the EU was pleased by a welcome change in tone from the UK in the talks.
Since the UK officially left the EU in January 2020, several new trade arrangements have emerged. However, the agreements were looking to be under threat as the UK was complaining about difficulties in implementing the required checks on goods moving from Great Britain to Northern Ireland.
The nature of this border post-Brexit has been a significant sticking point in negotiations between the UK government and the European Union. Last month, the European Commission proposed adopting certain parts of the trade deal to make these checks easier. However, EU officials have since complained that UK Prime Minister Boris Johnson’s government is unwilling to negotiate. Many political analysts started warning that this standoff could drag on for several months, which ultimately raised concerns in the market.
On Friday, the Brexit ministers, Frost and Sefcovic, met in London. According to the EU’s chief Brexit negotiator, there was an improved tone in the latest round of negotiations related to trade in Northern Ireland even as the UK repeated a threat to walk away from its post-Brexit commitments if a resolution couldn’t be found.
BoE kept the policy rate steady at 0.1%
Apart from Brexit, the Bank of England’s Governor, Andrew Bailey, said that there was a risk of more bottlenecks in the economy. Especially in demand for labor, which could fuel expectations of higher inflation. He further said that the BoE lacked the tools to control growing gas prices but monitored inflation spread throughout the economy. He proposed that the Bank of England intervene if it believes that higher inflation expectations will raise wages.
After last week’s Bank of England kept its benchmark interest rate on hold at 0.1%, these comments came in. BoE kept policy unchanged despite raising its inflation forecast to 4.5% by the end of the year and 5% by early 2022. Market participants expected a rate hike from the Bank of England, but the bank decided otherwise, ultimately weighing on the British pound.
UK Prelim GDP weakened, dragging the EUR/GBP to 0.8528
On the data front, the prelim GDP for the quarter from Britain dropped to 1.3%, against the projected 1.5%. Worse than expected, economic data weighed on the British Pond. The recovery of the British economy from its third COVID-19 lockdown slowed sharply over the summer. That’s primarily due to rising infection rates, global supply shortages, and higher inflation.
In the third quarter, UK GDP growth slowed sharply to 1.3% from 5.5% in the second quarter. The economic recovery of the UK lagged behind that of other rich nations in the third quarter, which underscored the interest rate dilemma facing the Bank of England.
EUR/GBP daily technical levels
Support Resistance
0.8543 0.8576
0.8526 0.8592
0.8510 0.8609
Pivot Point: 0.8559
EUR/GBP triangle breakout – Potential bearish setup below 0.8544
The EUR/GBP is trading at the 0.8528 level. However, the pair has already violated the symmetrical triangle pattern at 0.8544. Typically, the breakout of a symmetrical triangle pattern causes a continuation of a trend. Since there’s a bearish breakout, we can expect a bearish trend continuation in EUR/GBP.
The closing of candles below the 0.8544 level demonstrates the chances of a selling trend in the EUR/GBP pair. Further on the lower side, the EUR/GBP is likely to find immediate support at 0.8513. A break below the 0.8513 level exposes the EUR/GBP pair towards the 0.8491 support level.
On the bullish side, the EUR/GBP pair is likely to find significant resistance at the 0.8544 level. The 20 and 50-day exponential moving averages are extending such resistance. Thus, the closing of candles below these EMA lines demonstrates the potential for a sell trade.
Lastly, the leading technical indicators such as MACD and RSI held below 0 and 50, respectively. Both indicators are signaling a selling trend in the EUR/GBP pair.
Setup for a EUR/GBP trade
We should consider taking sell positions below the 0.8544 level with a target of 0.8513 and 0.8490.
Alternatively, buy trades should only be preferred if EUR/GBP crosses above the 0.8570 resistance level. In such a scenario, we can target 0.8595 and 0.8609.
