Sterling blushes on inflation concerns

After weeks of free fall, the euro has finally started regaining some traction against the sterling.

Source: Bloomberg

Just this year, EUR/GBP slipped from around £0.8000 all the way down to within touching distance of £0.7000. This £0.7000 level has since provided some support and we’ve actually seen a bit of a bounce off it.

The euro has seen a bit of an upturn recently, supported by the ECB’s asset purchase programme, which showed a wider-than-expected spectrum on the asset side. A much less aggressive and more cautious Mark Carney has contributed to the recent bout of weakness in the sterling. Carney warned inflation is likely to sink further in coming months and that saw the sterling take something of a hit.

Taking a closer look at the price action, there is downtrend resistance that had been in place since January and has been capping prices over the past couple of months. The pair closed right on this line and it’ll be interesting to see if it can sustain gains in the near term.

The 23.6% retracement of the January-to-March fall comes in at £0.7249 and that’s the next key level to look out for. If this recovery doesn’t have legs, I suspect sellers will come in around that £0.7249 region.

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