EURGBP has been trading in a short-term uptrend for most of the month, as an ascending trend line can be drawn to connect its recent lows. Price has formed a bullish divergence, with stochastic making lower lows and the pair making higher lows right on the trend line support.
In addition, the ascending trend line lines up with the 100 EMA, which has acted as a dynamic support zone in the past. The shorter-term EMA is still treading above the longer-term moving average, confirming that the uptrend is likely to stay intact. Stochastic is also moving up from the oversold area, indicating that a pickup in buying pressure is taking place.
If the rally resumes, EURGBP could move back up to the previous highs around the .7400 major psychological level or create new highs closer to the .7500 handle. On the other hand, a break below the ascending trend line might be a sign that a reversal might take place.
The path of least resistance is to the upside though, as the euro zone has been seeing improvements in data so far. While the PMI reports painted a mixed picture, consumer and business sentiment in Germany turned out better than expected and could be indicative of increased activity moving forward.
Meanwhile, the UK has printed a stronger than expected retail sales reading but the pound failed to rally on the news. This suggests that traders are starting to doubt the BOE’s upbeat bias and are pricing in more weakness for the economy. Many have also been disappointed that the actual consumer spending reading wasn’t as impressive, given the consecutive increases in hiring seen in the UK.
There are no event risks lined up from the euro zone today but the UK has a couple of potentially market-moving speeches from BOE officials and MPC members today.
By Kate Curtis from Trader’s Way