EURGBP sold off sharply from its previous rally to the .9300 region, pulling back to an area of interest around the .8700 to .8800 levels.

This lines up with the 50% to 61.8% Fibs, which could hold as potential support. Stochastic is already indicating oversold conditions to show that sellers need to take a break, but the oscillator has to pull higher to signal that buyers are getting back in. 

The 100 SMA is still above the longer-term 200 SMA on the daily time frame so the path of least resistance is still to the upside. Price is also trading around the 100 SMA dynamic support but a larger pullback to the 200 SMA dynamic inflection point closer to the lowest Fib is possible. 

The pound got a strong boost from better than expected UK CPI, which then fueled hawkish expectations for the BOE decision. The central bank acknowledged that the economy has been improving and signaled a potential tightening move down the line, with MPC member Vlieghe reiterating those upbeat points on Friday. 

Meanwhile, the euro was also previously supported by ECB tapering expectations but has been vulnerable to a selloff with some officials expressing concern about currency appreciation. Also, the region’s trade balance turned out weaker than expected on Friday at a surplus of 18.6 billion EUR versus the earlier 21.7 billion EUR and the estimated 20.1 billion EUR figure.

Euro zone final CPI readings are due today, along with the Italian trade balance. As for the UK, the freshly released Rightmove HPI showed a 1.2% decline in house prices, following the earlier 0.9% drop. UK retail sales is due later in the week and analysts are expecting to see a 0.2% uptick. 

By Kate Curtis from Trader’s Way