EUR/GBP Hovers Near Key Critical Level, Further Uptick Seems Elusive
- EUR/GBP Cross hovers near key critical level after attracting fresh demand on Tuesday
- Bets for aggressive ECB rate hikes underpin the Euro and act as a headwind
- Latest data coming out of Europe points to high consumer spending, sticky inflation, and stalled growth in the eurozone area
EUR/GBP pair prolonged its recent strong move-up witnessed since yesterday and gained traction for the second successive day on Wednesday and for now, seems to have snapped a two-day losing streak. The momentum lifted spot prices to a crucial zone, around the 0.88021 - 0.88042 region and just a few pips below key Fibonacci Retracement level during the second half of the Asian Session.
Increased bets for additional rate hikes by the European Central Bank (ECB) turned out to be a key factor that offered support to the Euro and capped the major against any further downtick. The narrative was further supported by the latest data coming out of Europe which pointed to high consumer spending, sticky inflation, and stalled growth in the eurozone area. An INSEE France report yesterday showed that Household spending in France rose 1.5 percent from a month earlier in January 2023, above the market expectations of a 0.4 percent increase and recovering from an upwardly revised 1.6 percent drop in the previous month.
Additionally, the Consumer Price Index (CPI) in France increased to a four-month high of 0.90 percent in February of 2023, after a 0.4 percent rise in the previous month according to a preliminary report by INSEE France. Furthermore, the French economy expanded 0.1% on quarter in the last three months of 2022, the least since a 0.2% contraction in the first quarter of the year, but matching preliminary estimates according to a report released yesterday by the French National Institute for Statistics and Economic Studies. Considering full 2022, the French economy rose 2.6%, after a 6.8% increase in 2021.
In other news, The annual consumer price inflation rate in Spain accelerated to 6.1 percent in February of 2023 from 5.9 percent in the previous month, a preliminary estimate by the Spain National Institute of Statistics (NIS) showed. The reading came in well above market expectations of 5.7 percent as electricity prices rose again after a fall in January and food prices were higher than a year earlier. Additionally, Consumer prices in Spain, harmonised to make them comparable with inflation data from other European Union countries (HICP), rose 6.1% on the year after 5.9% in January, and well above market expectations of 5.5%, a NIS preliminary estimates on tuesday showed.
That said, the markets also seem convinced that the ECB will hike interest rates aggressively in the next coming monetary policy meeting. This was reinforced by the hawkish comments recently by top ECB officials. In fact, ECB President Christina Lagarde in an interview with the Economic Times India said, “ Since July, we have hiked interest rates at a pace and size that is unprecedented. Interest rates are the most efficient tool in the present circumstances. There is every reason to believe that we will do another 50 basis points in March. After that, we will see. We are data dependent”.
When asked if the pace of interest rate hikes could slow, she said, “We will do more hikes if necessary to return inflation to our target of 2% in a timely manner. It will take what it will take. What I know is that we will return inflation to 2%. And we want to not only return it to 2% but to keep it there sustainably. Shifting to the UK docket, UK PMIs data released last week showed the UK Manufacturing sector continued to recover in February after beating market expectations of 47.5 to land at 49.2. The data somewhat raised hopes that Britain may be able to avoid a recession. This in turn could persuade the BoE to continue tightening its monetary policy in the future to tame inflation.
As we advance investors now look forward to second-tier Euro and UK economic datas which along with the broader risk sentiment will influence the euro and pound price dynamics.
Technical Outlook: Four-Hours EUR/GBP Price Chart
From a technical standstill, using a four-hour price chart, the price is now hovering near a critical resistance level plotted by a 61.8% Fibonacci retracement level at 0.88049 level. If the price fails to break above the aforementioned resistance level it would negate any near-term bullish outlook and pave the way for technical selling around the EUR/GBP pair. A move below the 0.88000 psychological mark and the subsequent fall below the 50% Fibonacci retracement level at 0.87958 level would add credence to the bearish outlook supported by the acceptance of price below the 200 Exponential Moving Average (EMA) at 0.88277 level. Additionally, the technical oscillators on the chart are all holding in bearish territory suggesting the likelihood of continuation of the overall downward trajectory.
On the flip side, if buyers manage to break above the 61.8% Fibonacci Retracement level, it would pave way for additional gains around the EUR/GBP pair. The bullish trajectory could then accelerate toward the technically strong 200 Exponential Moving Average (EMA) at the 0.88277 level. If buyers pierce this barrier convincingly it would negate any near-term bearish outlook and pave the way for aggressive technical buying around the EUR/GBP pair.
