Fundamental Analysis

EUR/USD, GBP/USD Hold Near Resistance Ahead of Euro

EUR/USD, GBP/USD Hold Near Resistance Ahead of Euro

Both the EUR/USD and GBP/USD pair are holding near key points of resistance with inflation data set to be released from each economy tomorrow morning.

While European inflation has fallen as the ECB has lifted rates with tomorrow expected to show at 6.9% for headline CPI, UK CPI remains stubbornly elevated after last month’s 10.4% print, leading to an expectation for a 9.8% read in tomorrow’s release.

Both the Euro and British Pound remain very near recent highs ahead of tomorrow’s CPI data. Going first is the UK with data to be released at 2:00 AM ET. The expectation is for core inflation to come in at 6.0% and headline inflation to print at a whopping 9.8%. This would still be lower than last month’s 10.4% print but, well beyond where the Bank of England would like it.

In Europe, there’s a bit of hope for even more softening after the preliminary print earlier in the month came in at 6.9% which sets the expectation for the same at tomorrow’s release, scheduled for 5:00 AM ET.

Last month’s CPI release out of the Eurozone printed at 8.5%, which marked the fourth consecutive decline in that data point. As the European Central Bank became more hawkish in the second half of last year, the single currency has continued to stage a comeback, which I’ll look at in the next chart.

While four months of lower inflation is an encouraging factor, it’s also less than what’s shown in the US after last month marked the ninth consecutive month of lower headline CPI in the United States. This has allowed for the ECB to remain on the hawkish side of the picture with continued focus on rate hikes to further tamp down inflation. Accordingly, this has kept the single currency bid against the US Dollar, with a large zone of resistance remaining in-play from the 1.0943-1.1033 area on the chart.

EUR/USD set a new fresh yearly high on Friday, with a pullback running through the weekly open. That high came in at the 78.6% retracement of the major move that spanned from February to September of last year, and the 76.4% retracement from that same study is what helped to catch the high back in February, just before a 500+ pip sell-off.

With the more recent resistance test, we haven’t yet seen bulls relent as the series of higher-highs and higher-lows has remained in-play. A breach of last week’s swing low at 1.0831 could begin to change that, however, if we see such a reaction around tomorrow’s CPI data out of Europe.

The inflation picture in the U.K. remains more concerning after last month’s 10.4% print for headline CPI. Tomorrow is expected to come in at 9.8% which would be a bit of relief after UK CPI printed above 10% for six consecutive months, with the last read below that level a 9.9% print that was released in September (for August data).