EUR/GBP flirts with 100-day SMA, just above 0.8800 mark ahead of German CPI
- EUR/GBP drifts lower for the second successive day, though lacks follow-through selling.
- The softer German GDP report weighs on the Euro and exerts some pressure on the cross.
- Investors now look to the German consumer inflation figures for some meaningful impetus.
The EUR/GBP cross attracts some sellers following an early uptick to the 0.8835-0.8840 region on Friday and turns lower for the second successive day. Spot prices drop to a fresh weekly low during the early part of the European session, with bears flirting with the 100-day Simple Moving Average (SMA) support around the 0.8800 mark.
The shared currency's relative underperformance could be attributed to the disappointing release of the preliminary German GDP report, which turns out to be a key factor weighing on the EUR/GBP cross. In fact, Germany's Destatis reported this Friday that growth in the Eurozone's largest economy stagnated during the first three months of 2023. Moreover, the annualized GDP showed an unexpected contraction of 0.1%, down sharply from the 0.9% rise recorded in the final quarter of 2022. This, along with a goodish pickup in the US Dollar (USD) demand, exerts additional downward pressure on the Euro.
The British Pound, on the other hand, draws support from growing acceptance that the Bank of England (BoE) will hike interest rates by 25 bps in May. This further contributes to the offered tone surrounding the EUR/GBP cross, though the prospects for more rate hikes by the European Central Bank (ECB) should help limit further losses, at least for the time being. It is worth recalling that the ECB chief economist Philip Lane said on Tuesday that the central bank will need to raise interest rates again in May and leaving interest rates at current levels will be inappropriate despite falling inflation.
This, in turn, makes it prudent to wait for some follow-through selling and sustained weakness below the 100-day SMA before positioning for any further depreciating move. Traders might also prefer to move to the sidelines and wait for the release of the flash German consumer inflation figures. Nevertheless, the EUR/GBP cross remains on track to register modest losses for the second successive week as market participants start repositioning for the highly-anticipated ECB monetary policy meeting next Thursday.
Technical levels to watch