EUR/GBP May Have Further To Slide

Key levels:
Resistance – 0.8520, 0.8570, 0.8595
Support – 0.8470, 0.8403

The Currency Pair of the Week this week is GBP/USD because of the reaction from the US Dollar to the recent inflation data. However, it could just have easily been EUR/GBP. The UK is releasing the Claimant Count this week, which will be the first look at jobs data since the furlong program ended on September 30th. On Wednesday, the UK releases their inflation data and on Friday they release Retail Sales (See the Currency Pair of the Week for expectations). There is potential for a great deal of volatility in GBP this week. 

EUR/GBP has been in a downward trend since December 2020. First it fell aggressively from 0.9200 to 0.8472 by April 5th, then fell more orderly in downward channel from 0.8719 on April 16th to the October 27th lows at 0.8403. After the BOE meeting the pair bounced to trendline resistance at the top of the channel and the 200 Day Moving Average near 0.8574. However, the resistance held, and the pair sold off on Friday and Monday, as markets became fearful of high inflation data from the UK this week. 

On a 240-minute chart, EUR/GBP is holding the 61.8% Fibonacci retracement from the lows of October 26th to the highs of November 5th, near 0.8476. The pair is also holding horizontal support at 0.8469. Below there, support is at the bottom of the channel near 0.8416 and then the lows from October 26th, at 0.8403. First resistance is at a confluence of the 50 Day Moving Average and prior Intra-day lows between 0.8515 and 0.8520. Above there, resistance is at the top, downward sloping trendline of the channel near 0.8571 and then the highs from November 5th at 0.8595. 

Over the last 2 days, EUR/GBP has moved from a high of 0.8567 to a low of 0.8471, near 100 pips. With the upcoming economic data from the UK, combined with the lack of interest from the ECB to raise rates any time soon, EUR/GBP could become extremely volatile this week!