Is it about time for a significant correction?
The pair has been on a monstrous run since May after bottoming out around 0.8500 in a move to hit a high of 0.9051 last week. Part of the gains in the pound today is attributed to flows in EUR/GBP with euro selling after the weaker data earlier.
But from a technical perspective, failure to break above daily resistance around the swing region of 0.9055-88 and price falling back below the 0.9000 handle points to exhaustion among buyers after the run higher.
For now, price is closing in on testing support around 0.8920 and the 23.6 retracement level close to 0.8915. That will be the first key area to watch out for in the sessions ahead.
The near-term bias in the pair is also favouring sellers now so unless price climbs back above key hourly moving averages closer to 0.8977, there is scope for the pair to explore a further downside move with the ECB coming up tomorrow.
Further support is seen around 0.8900 and swing region lows close to 0.8870-75.
The caveat in all of this will be the ECB decision tomorrow as that will play a role in influencing the euro as we look to end the week. If the ECB “disappoints” with only a shift in forward guidance, I reckon there is room for the euro to gain on a knee-jerk reaction.
However, even if that happens, expect Draghi to be extra dovish in his press conference to not lead markets to believe that they will allow things to slip away. That should temper with any euro gains potentially but otherwise, there is reason to expect a bit more of a correction in EUR/GBP in the mean time.