FX.co ★ EUR/GBP: Strong pound, stable euro

The European currency today is again under pressure of a fundamental background. Weak rates of inflation in the eurozone caught the traders by surprise: instead of the forecasted 1.6%, the released figure was at 1.5%, adding one-tenth of a percent to the previous value. The core consumer price index also did not show a positive trend, being at the level of the previous month (0.9%). Unchanged inflation rates of Italy and France did not change the overall picture: the Italian index remained in the negative area, while the French index barely exceeded the zero line (0.1%).

The only positive macroeconomic data of today for the euro is the continuing decline in unemployment. Contrary to neutral forecasts, labor market data came out in the "green zone": in Germany, the number of unemployed fell to almost 20, 000, and in the euro area as a whole, the unemployment rate unexpectedly dropped to a record 8.8%.

But the labor market had weak support for the European currency. Traders very well remembered the position of Mario Draghi, who threatened to extend the QE program, if inflation does not show steady growth in the next year. The momentum seen in the first decade of this year gradually fades away, even despite the growth of oil prices. Here it is worth noting that European inflation is still increasing (even today's data speak of this), but the market was expecting more dynamic movements that would indicate a stable trend.

As a result, the situation was very controversial. On one side of the scale is the strong position of the labor market in the EU and the weak, but still rising inflation. On the other hand, the inflated demands of investors and the ECB. Even in a period of pronounced inflationary growth, Mario Draghi critically evaluated optimistic figures.

In other words, today's data could not determine a clear direction of the euro's movement, and the currency "trusted" the quoted currencies. The euro-dollar pair collapsed to the bottom of the 18th figure, but at the start of the American session it fully regained its positions and even updated yesterday's high. But this dynamics is due only to the weakness of the Greenback, which reacted to the inexpressive data on personal consumption in the US. The indicator remained at 0.2%, thereby reducing the likelihood of an impetuous rise in US inflation. And given the weak growth in the average wage, the November consumer price index may well be in the negative area.

Thus, the EURUSD traders switched from one problem to another: information about low inflation in Europe was offset by similar trends in the U.S. The beneficiary is the euro, which is now approaching the middle of the 19th figure.

Quite a different situation in the cross-pair EURGBP. Figuratively speaking, the strong pound is opposed to the stable euro. Today's volatility in the pair is a vivid confirmation: in the morning the price dropped to support level 0.8775 (the bottom line of the Bollinger Bands indicator on D1), but in the second half of the day the European returned the pair to the area of the 88th figure. This was not due to the weakness of the pound (in the GBPUSD and GBPJPY pair the Briton is growing impetuously), but due to the recovery of optimism about the European currency.

In general, the fundamental picture regarding the pound remains positive: first of all because of the Brexit progress. According to preliminary data, London was able not only to negotiate with Brussels on the amount of the deal, but also agreed with Dublin on the issue of the border between the Republic of Ireland and the United Kingdom in Northern Ireland. In other words, Theresa May decided on one the most difficult points, which served as a stumbling block during the six-month negotiation process. The issue of the legal status of EU citizens (permanently residing in the UK) remains unresolved, but here, in my opinion, it will be easier to find a compromise.

All this indicates that on December 15 at the EU summit the parties will come to an agreement on the most important issues of Brexit. The market is already acting out this scenario, actively buying up the pound. The European currency against the background of such powerful information "trumps" appears more weakly, but the growing economy of the EU and the declining unemployment allow the currency to feel confident. This combination of fundamental factors leads to large-scale corrective retracements for the EURGBP pair, which allows traders to advantageously open positions.

From the technical side, the priority for the euro/pound pair also remains behind the British currency. On the daily chart, the pair trades between the middle and bottom lines of the Bollinger Bands indicator. Short term it is possible to work within the price range 0.8890-0.8775. If we consider longer periods, then it is necessary to monitor the dynamics of prices. In the event that the price overcomes the upper price channel (0.8890), the upward movement will be limited by the following resistance level - 0.8910, which corresponds to the lower boundary of the Kumo cloud on the daily chart. If the downward impulse is continued and the pair moves below 0.8775, the next target of the bears will be the price of 0.8695, the bottom line of Bollinger Bands on the weekly chart.