EURGBP has climbed higher after forming a base at 0.8160. The pair nudged above the 100 and 50 day simple moving averages to trade higher. However, the rally stalled around 200 SMA.
Yesterday, a series of events affected EURGBP, including the German Ifo business climate index, German business expectations, UK inflation data and ECB President Mario Draghi’s speech.
Impact from Draghi, Weidmann, Liikeanen and Makuch
European Central Bank officials warned the market on Tuesday that they will consider every possible step to protect the growth and low inflation. Mario Draghi in a lecture at Sciences Po University in Paris reiterated the possibility of additional measures if required, including new bank-lending programs and large-scale asset purchases, known as quantitative easing. He also mentioned that the central bank is keeping a close eye on the foreign exchange rate, as it plays an important role in growth.
Earlier, ECB’s Weidmann mentioned that QE program remains an option and not out of the equation. Following his comments, the Euro was seen trading lower, as comments did not go down well with the buyers. Later, ECB’s Makuch ignited further downside, as he said that he wouldn’t oppose QE if essential. Moreover, ECB’s Liikeanen, in an article in the WSJ said that negative deposit rate is also an option to fight unreasonably low inflation.
EURGBP is facing a huge hurdle in form of 200-day simple moving average, trend line connecting major previous highs and 38.2% Fibonacci retracement level of the last leg lower from the 0.8766 high to 0.8160 low. The pair has failed a couple of times around 200 SMA, and formed a bearish candle pattern as well. So, the level to watch out in the short term is 0.8390. A break and close above would call for further gains towards the 50% retracement level, which also represents previous swing high.
On the downside, there are a couple of trend lines waiting to provide support to the pair. The most important support might be 100-day SMA around 0.8300 (November 7th low). A push below could open the doors for a test of the next bullish trend line around 50-day SMA. There is a minor divergence noted on RSI as well between the previous major highs suggesting the current bearish move might have legs in the short term.
UK Retail Sales
UK retail sales figures for February will be released tomorrow. This particular event might cause movements in the pair. The expectation is of improvement in the last month, and if the outcome does not disappoint, then EURGBP might find sellers post event.