EUR/GBP Forecast: Stalls At 50-Day EMA As UK PMI Surges

Currently, the market is factoring in a stronger British pound, and that makes a little bit of sense.

Euro / British Pound (EUR/GBP)

The euro initially did rally a bit during the trading session on Friday but gave back early gains as we peeked through the 50-day EMA. Currently, the market is factoring a stronger British pound, and that makes a little bit of sense. The composite of the PMI in the United Kingdom was 52.5 versus 51.6, and services came out at 52.8, 1 whole point above expected. Manufacturing came out at 51.5, basically in line, so this shows that the United Kingdom is still growing. The Q3 GDP of around 0.3% helps by both tech investment and, to a certain extent, weather in the United Kingdom, so a lot of things are going correctly at the same time in the UK. The eurozone is strong, but it's a little less of a surprise. The numbers came in a little bit higher this week in the PMI data than expected, but almost in line, so it's a relative strength situation.

Interest Rate Differentials and Technical Levels

The situation right now with the United Kingdom Bank of England rate at 3.75% being held the last time, with 3 votes being for a hike to 4%, this, of course, is something that will have to be kept in the back of your mind as the CPI numbers came out at a 4-month high as well. On the other hand, most analysts believe that the European Union may raise rates by 0.25%, but that still leaves the interest rate differential in favor of the United Kingdom, and it does not look like the ECB is likely to begin some type of aggressive hiking cycle. So, it does make a certain amount of sense.

This pair has been grinding in this area, and if we can break down below the latest swing low, somewhere near the 0.8540 level, we may see a continuation to the downside. Above, we have the 0.86 level. That, I believe, is a bit of a resistance barrier, as it was previous support.