EUR/GBP Aims To Test Key Resistance Levels After Minor Correction
- EUR/GBP attracts fresh buying on Tuesday after seesawing between minor gains and minor losses during the early Asian session
- The BOE's dire economic outlook behind the GBP's relatively lackluster performance
- The latest Eurozone Sentix investor Confidence index data points to a high likelihood of recession across the 19-member common currency bloc
EUR/GBP pair seesawed between minor gains and minor losses during the early part of the Asian session. The cross struggled to capitalize on extending Monday's overnight modest pullback from the vicinity of 0.84461 level and ran out of steam after attracting fresh bullish bets in the last hour or so on Tuesday. The pair looks to test key resistance levels ranging from the 0.84394 - 0.84529 levels and was last seen trading in modest gains heading into the European session.
On the European economic data front, the latest Eurozone Sentix investor Confidence index improved slightly, but the outlook remains bleak. The confidence index improved from -26.4 in July to -25.2 in August. Despite the slight improvement, the report cites consumer sentiment as the greatest economic burden at present, as they are more aware of the reduction of purchasing power due to soaring energy costs. Furthermore, it indicates a high likelihood of recession across the 19-member common currency bloc.
Officials in Europe have also become increasingly concerned about the possibility of a shutdown of gas supplies which has led to an energy crisis in Europe, and further cuts in Russian gas supplies could push eurozone inflation higher and severely impact growth in the eurozone area. Investors also remain concerned that global-supply chain disruptions caused by the Russia-Ukraine war would continue pushing consumer prices even higher. The combination of factors, in turn, did little to impress bulls or provide any directional impetus to the EUR/GBP cross.
The Bank of England issued a dire outlook for economic growth last week against the backdrop of its largest interest rate hike announcement by 50bps since 1995, suggesting that the latest gas price rise has led to another "significant deterioration" in the outlook for activity in the U.K. and the rest of Europe. The BOE's Monetary Policy Committee now projects that the U.K. will enter recession from the fourth quarter of 2022 and that the recession will last five quarters as real household post-tax income falls sharply in 2022 and 2023 and consumption begins to contract. This was seen as a key factor behind the British Pound's relative underperformance and is lending some support to the EUR/GBP cross.
As we advance, in the absence of any significant market-moving economic news data from both dockets, it will be prudent to wait for strong follow-through buying before confirming that the EUR/GBP cross has broken above the narrow range 0.84037 - 0.84543 levels before positioning for further fresh bullish bets.
Technical Outlook: Four-hour EUR/GBP Price Chart
From a technical perspective, using a four-hour price chart, the price has failed to extend Monday's overnight pullback from the 0.84461 level after attracting fresh bullish bets in the last hour or so on Tuesday. Some follow-through selling would push the asset towards testing the key demand zone turned support level ranging from 0.84037 - 0.84096 levels which would act as a barrier against the asset. That said, if broken decisively, the barrier would be seen as a fresh trigger for bears to continue pushing down the price and pave the way for additional losses.
The RSI(14) level at 59.13 level is in bullish territory and not far away from the oversold condition. The Moving average convergence divergence(MACD) crossover will add to the bullish sentiment later today. Additionally, the 20 and 50 Exponential Moving Average(EMA) crossover at the 0.84107 level adds credence to our bullish filter.
On the Flipside, a pullback toward testing the key supply zone turned resistance level ranging from 0.84394 - 0.84529 level followed by a convincing break above the aforementioned zone would negate any near-term bearish bias and pave the way for technical buying.
