Over the past seven weeks, the EURGBP currency pair has experienced six weeks of losses, primarily driven by resilient U.K. economic data contrasting with the slumping Euro Area economic data.  

Europe’s biggest economy, Germany, slipped into a recession after GDP contracted for two consecutive quarters, further weighing on the Euro. In addition, German inflation declined to levels last seen in March 2022, while France, Spain, and Italy experienced lower inflation rates, leading up to a 6.1% Euro Area preliminary inflation, below the 6.3% expected.  

Technical 

The EURGBP currency pair has been taken over by selling pressure which led price action into a descending channel pattern, with the price crossing below the 100-day moving average to validate the downtrend. Support and resistance were established at the 0.85750 and 0.88338 levels, respectively.  

A high volume breakout below the descending channel pattern confirmed the market was in contention to find a lower price. This led to the EURGBP nearly reaching its 24-week low. With the Relative Strength Index in oversold territory, demand could outweigh supply, similar to how the low was formed, making a reversal probable. Bullish traders will likely aim for the 50% Fibonacci Retracement level if they commit to a move higher.  

Alternatively, a high volume breakdown below the support level could indicate that bearish momentum lurks. Bearish traders will likely aim for support at the 0.84209 level as the next point of interest if bearish pressure persists.  

Summary 

Given that the European Central Bank (ECB) and Bank of England Are likely to keep raising rates, to bring inflation back within a shared target of 2%, the ECB will likely take their foot off the pedal sooner, with Germany now in a recession. Traders will probably monitor the 0.85750 level closely as bullish or bearish sentiment could pivot off the level. 

Sources: Reuters, TradingView