Forex Analysis & Reviews: 16.01.2025 - EUR/GBP: Analysis and...

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InstaForex Loprais Team - Official participant of the Dakar rally

16.01.2025 01:39 PM

EUR/GBP: Analysis and Forecast

The EUR/GBP pair is recovering positive momentum today, drawing buyers near the 0.8400 level. This move helped halt the sharp pullback from the previous day, which followed the pair's rise to its highest level since August 23, 2024.

The recovery is supported by a combination of factors. After the release of macroeconomic data from the UK and the final CPI (Consumer Price Index) data from Germany, spot prices maintain a positive bias.According to the UK's Office for National Statistics (ONS), the economy returned to growth, expanding by 0.1% in November after contracting by 0.1% in the prior month. However, other reports revealed that monthly industrial and manufacturing production fell more than expected, declining by 0.4% and 0.3%, respectively, in November.

These developments, combined with weaker UK consumer inflation data, provide the Bank of England (BoE) with room to consider cutting interest rates at its February monetary policy meeting. Additionally, concerns about the UK's fiscal situation and the risk of stagflation—a combination of high inflation and weak economic growth—are weighing on the British pound.

On the other hand, the euro is finding support from rising German CPI and core annual inflation, which increased to 3.3% in December, up from 3.0% in the previous month. This is creating additional demand for the EUR/GBP pair. However, these figures also raise concerns about stagflation in the eurozone's largest economy, reinforcing expectations of further interest rate cuts by the European Central Bank (ECB). These factors are limiting the euro's upside potential and necessitate caution for traders considering new long positions in this currency pair.

Given the above, it would be prudent to wait for a break above the critical 200-day Simple Moving Average (SMA) and a sustained close above this level before initiating new long positions. While oscillators on the daily chart remain in positive territory, they are approaching overbought levels, which calls for caution among buyers.

If the price convincingly rises above the 200-day SMA and closes above 0.8450, the pair could target a return to the 0.8500 level.

On the other hand, immediate support for the EUR/GBP pair lies near the 0.8400 level, where the pullback halted during the previous session. Below this, additional support can be found at 0.8382, followed by the 100-day SMA. A break below the 100-day SMA and a move toward the 50-day SMA would shift the bias in favor of the bears.