After breaking below the short-term support and indicating further downside momentum, EURGBP is showing signs of a potential pullback to the broken support. Using the Fibonacci retracement tool on the latest swing high and low on the 1-hour time frame shows that the 50% Fib level lines up with the area of interest and 100 SMA.
The short-term moving average is also below the longer-term 200 SMA, confirming that the selloff is likely to carry on. Stochastic is already moving down from the overbought zone, reflecting a pickup in bearish momentum. RSI is also heading lower, which means that sellers are taking control of price action.
In that case, a move towards the previous lows at the .7200 major psychological level might be in order. A higher pullback to the 61.8% Fib level and 200 SMA might be possible if the pound also undergoes weakness in today’s trading sessions.
Data from the UK came in below expectations yesterday, as the public sector net borrowing report indicated a wider deficit of 11.3 billion GBP versus the projected 8.7 billion GBP shortfall. To top it off, the previous reading suffered a downgrade from a surplus of 2.1 billion GBP to just 0.1 billion GBP. In addition, the CBI industrial order expectations index slipped from -1 to -7, reflecting weaker order volumes.
For today, the event risks are mainly the euro zone PMI releases and ECB Governor Draghi’s speech. Small improvements in France’s manufacturing and services PMI readings are expected while Germany could post declines, dragging the region’s overall PMI figures down as well. Draghi is expected to reiterate the ECB’s willingness to ease further, possibly highlighting the recent downgrades in inflation readings for August. If that happens, EURGBP might resume its slide to new lows, possibly until the .7000 handle.
There are no other reports lined up from the UK for the rest of the week while Germany still has its IFO business climate index due tomorrow. This figure is slated to fall from 108.3 to 107.8, reflecting weaker optimism and probably leading to more losses for the euro.
By Kate Curtis from Trader’s Way