The EUR/GBP pair continues its downward trend, having recorded 0.8240 today, marking its lowest level since March 7, 2022. This indicates a decline of around 5% since the beginning of the year to date. It is currently trading near the 0.8250 level. It appears that the negative momentum for this pair is dominant in the coming period. As for the fundamental and technical factors that could pressure this pair, we note the following:
Fundamental Factors:
The continued weakness in economic data from the Eurozone, especially in Germany and France, the two largest economies in the region. The industrial and services purchasing managers’ indices (PMIs) have significantly declined in the Eurozone, Germany, and France in November, particularly as both indices remain in contraction territory.
The Eurozone Consumer Price Index (CPI) recorded an annual growth of 2.3%, which met expectations but was higher than the previous reading (2.0%). The core CPI (excluding food and energy) grew by 2.7%, which was lower than the expected 2.8%, but matched the previous reading, indicating a potential 25 basis point rate cut in the upcoming European Central Bank (ECB) meeting scheduled for Thursday, December 12, 2024.
In contrast, the UK’s construction and services PMI indicators remain in growth territory, unlike the situation in the Eurozone. The UK’s annual CPI growth was 2.3%, higher than the expected 2.2% and the previous reading of 1.7%. The core CPI (excluding food and energy) recorded an annual growth of 3.3%, higher than the expected 3.1% and the previous reading of 3.2%. This recent data suggests that the core CPI remains far from the Bank of England’s target of 2%, implying that the Bank of England may not lower interest rates at its meeting scheduled for Thursday, December 19, 2024.
The ongoing difference between the yields on UK and German government bonds exerts pressure on the EUR/GBP pair. For example, the yield on UK 10-year government bonds stands at approximately 4.33%, while the yield on German 10-year government bonds is about 2.13%, meaning the gap between them is around 2.20%, encouraging carry trade activity.
Technical Factors:
It seems that technical indicators may exert pressure on the EUR/GBP pair in the coming period for several reasons:
- The alignment of the 20-day, 50-day, and 200-day moving averages in a downward direction, where the 200-day moving average is above the 50-day moving average, and the 50-day moving average is above the 20-day moving average.
- The Relative Strength Index (RSI) currently stands at 35 points, indicating the pair’s bearish momentum.
- The Positive Directional Indicator (DMI+) is at around 11 points, compared to the Negative Directional Indicator (DMI-) at about 30 points. The large gap between these two indicators suggests that the selling pressure on the EUR/GBP pair remains in place.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
