EURGBP Rising Channel (Dec 15, 2014)

The pair is gearing up to test the top of the range around the .7950 minor psychological level, which might hold as resistance.

Stochastic is moving down, indicating a pickup in selling pressure and a potential move towards support at the .7900 major psychological mark. The pair might resume its selloff before even testing the top of the range if it breaks below the current consolidation at the .7925 area.

This pair’s movement could hinge on the outcome of euro zone and UK data this week, which include the release of euro zone PMI, BOE minutes, and UK jobs and inflation figures. From a fundamental standpoint, the UK is on a much better footing compared to the euro zone, although the BOE has recently pushed back rate hike expectations for next year due to weakening inflation pressures.

With that, the UK CPI release might be the biggest event risk for this trade this week, as another downturn in headline and core inflation figures could lead to pound weakness and a possible upside break from the channel. If that happens, buying pressure could strengthen and lead to more gains for EURGBP.

On the other hand, a recover in inflationary pressures and a move closer to the central bank’s 2% target could renew demand for the pound. This could even lead to a break below the rising trend channel support and may spark a reversal for EURGBP.

If the actual readings come in line with expectations, EURGBP could stay in range and bounce back and forth between support and resistance of the rising trend channel on the 1-hour time frame. Most of the event risks are centered mid-week, which might mean more volatility for the pair around that time.

By Kate Curtis from Trader's Way