EUR/GBP extends towards 0.8700 as bullish bounce takes hold

• EUR/GBP advances 0.50% at the start of the pre-holiday trading week.
• The Euro strengthens after Monday’s technical rebound against the British Pound.
• The speeches of the ECB and the Bank of England leave the Euro as the winner.

The EUR/GBP cross is consolidating a technical rebound towards the 0.8700 area after a tough battle above the 0.8600 area last week. In December, the pair struggled to build momentum after getting stuck at 0.8560 in November, down 2.3% from 0.8765.

ECB’s Kazimir: Falling inflation not enough to declare victory and move on to next phase

This week is a week full of inflation figures coming up in several markets, but the British Pound (GBP) takes the cake when it comes to top-tier data, with Consumer Price Index inflation figures due to be released on Wednesday. (CPI) and the Producer Price Index (PPI) of the United Kingdom. UK Gross Domestic Product (GDP) and retail sales will be released on Friday.

Regarding the Euro (EUR), the Harmonized Consumer Price Index (HICP) of the Eurozone for the month of November will be published, although the confirmed figures are not expected to differ from the preliminary ones, which showed a contraction of -0.5% in Eurozone inflation in November.

BoE’s Broadbent: It takes time to understand the forces driving the economy

Some policymakers from the European Central Bank (ECB) and the Bank of England (BoE) appeared early on Monday, but markets swung in favor of the Euro as ECB officials appeared slightly more confident than their British counterparts.

The ECB’s Peter Kazimir noted that although it is too early to “declare victory” over inflation, ECB officials remain confident that inflation will continue to deflate towards the ECB’s 2025 targets. Kazimir’s message was shared by Yannis Stournaras, a member of the ECB Governing Council, who noted that the ECB would need inflation to fall below 3% and remain at that level by mid-2024 before starting to consider rate cuts.

For the United Kingdom, ECB Deputy Governor Ben Broadbent was less optimistic than his ECB counterparts, focusing on the volatility of official estimates and lamenting the disparity between different economic indicators that affect the British economy and cloud the ability of the ECB to provide accurate outlooks.

EUR/GBP Technical Outlook

EUR/GBP recovery above 0.8600 takes the pair towards the 200-day SMA near 0.8660. A clear break of the moving average would set the pair up for a challenge of the 0.8700 zone.

The pair remains notably below November highs, and December began with EUR/GBP testing four-month lows before slowly bottoming out at 0.8560.

Consolidation patterns have been the common theme for EUR/GBP in 2023, and it won’t take much for short sellers to interrupt the current bullish rally to chalk out another tentative reversal zone near the 200-day SMA at 0.8660 .

EUR/GBP daily chart

EUR/GBP technical levels