EUR/GBP has been trading in a roughly 400 pip range since February, but that range may begin to break down this week as we have significant EU and UK data scheduled for tomorrow morning (the 14th). The most important release scheduled tomorrow will likely be the UK employment data where economists are expecting the number of people requesting unemployment benefits to drop by just over 14k, following up last month’s 21.2k person drop. Seven of the last eight UK employment releases have been better than expected and in the past year the number of people requesting benefits has increased only once, suggesting fairly consistent improvement in the UK labor market. Should we see that trend continue, the Pound will likely appreciate across the board.
There are three major EU data release that are scheduled to accompany the UK employment figures, and they will make up the second half of the EUR/GBP reaction. French, German, and EU GDP figures are all scheduled to be released tomorrow morning and economists are expecting expansion in all three economies. The French economy is expected to expand by 0.1%, the Germans are expecting growth of 0.6%, and the EU-wide figures are expected to expand by 0.2%.
If we see an unexpected contraction in any of these numbers (but especially the EU-wide number) a good deal of Euro weakness can be expected.
As far as the technical setup on EUR/GBP is concerned, the first major support level sits at 0.8550, where the 100 day EMA and a major trend-line dating back to late April both sit. Below that level is the 200 day EMA at 0.8460 and below that is the range bottom, at about 0.8400. A break of the 0.8550 level opens up the strong possibility of a move down to that range bottom at 0.8400, and a break of 0.8400 will open up a far more significant correction on EUR/GBP.
On the other hand, a bullish move in EUR/GBP will encounter major resistance at the range top, around 0.8800. A break above 0.8800 opens up another leg higher in the pair and could easily lead to a challenge of 0.9000.
With both the Bank of England and European Central Bank pledging to keep rates low for the foreseeable future, EUR/GBP could become a battle of the “least bad” currency and tomorrow’s numbers could help set the stage for months to come.
Written by: Liam McMahon, Currency Strategist – GlobalFxClub.com