EUR/GBP analysis ahead of UK inflation data, Lagarde speech

The EUR/GBP exchange rate pulled back this week ahead of the upcoming UK consumer and producer inflation data and a speech by Christine Lagarde. It retreated to a low of 0.8830, the lowest point since February 1. It has retreated modestly from this week’s high of 0.8980.

UK. inflation data and Christine Lagarde’s speech 

The EUR to GBP exchange rate continued falling after the UK published the latest jobs numbers on Tuesday. According to the Office of National Statistics (ONS), the country’s unemployment rate remained at 3.7% in December, close to its all-time low. 

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At the same time, the economy continued adding workers even as recession risks rose. It added over 97k people to the labor market in the three months to December. Also, the tight labor market pushed wages to the highest level in years. 

The EUR/GBP price will next react to the upcoming UK inflation numbers scheduled for Wednesday. Like in other countries, economists believe that UK’s inflation remained at an elevated level in January. Precisely, they expect that the headline and core inflation retreated to 10.3% and 6.2%, respectively. On a monthly basis, analysts expect that inflation dropped by – 0.4% and -0.5%, respectively. 

The ONS will also publish the latest producer price index (PPI) data. Like the CPI, analysts believe that the PPI output dropped slightly to 13.3% while PPI input fell to 14.7%. All these numbers are substantially above the main target of the Bank of England. 

The EUR to GBP pair will also react to a speech by Lagarde, the head of the European Central Bank (ECB). In it, she will likely make the case that inflation was still a thorn in the flesh and that the bank will continue hiking rates in the coming months. 

EUR/GBP forecast

On the four-hour chart, we see that the EUR to GBP price has been in a strong bearish trend in the past few days. This sell-off started when the pair hit a high of 0.8980 last week. As it dropped, it moved below the important support level at 0.8897 (January 13 high). At the same time, the 25-period and 50-period moving averages made a bearish crossover pattern. 

The EUR/GBP price crossed the important support at 0.8850 (January 25 high). Therefore, the pair’s outlook is still bearish, with the next key level to watch being at 0.8800. A move above the resistance at 0.8850 will invalidate the bearish view.