EUR/GBP: knocking down the doors of the 0.88 handle, eyes for 0.8609/0.8555?

Currently, EUR/GBP  is trading at 0.8791, down -0.67% on the day, having posted a daily high at 0.8858 and low at 0.8785.

UK CPI rises further in May, its highest since April 2012

EUR/GBP is now consolidating the o/n sell-off on the back of a surprise headline UK CPI print. CPI was expected in at 2.7% y/y but a reading of 2.9% and the highest level since April 2012 sent cable higher. GBP/USD rallied and made a high of 1.2738. However, PPI was all-in-all a miss and the political uncertainty is something that the BoE will have to take into account when it next meets this week. 

UK consumer price inflation at 2.9% yet little prospect of BoE action - ING

"Inflation continues to push higher, but political and economic uncertainty mean the Bank of England is likely to tread carefully. We don't expect a BoE rate hike until there is much greater clarity on the outlook," explained James Knightley, Senior Economist at ING Bank, adding, "Given the lack of positive newsflow on the domestic economy and the political uncertainty the UK faces it is not surprising that financial markets are pricing in a less than 10% chance on an interest rate rise this year, with the probability of a rate rise by the end of 2018 put at just 33%. Given the lack of domestic price pressures (as highlighted by subdued wage growth) we don’t expect an interest rate hike before the official deadline for Brexit talks to conclude in 2019"

From the EZ today, the German ZEW Economic Sentiment Index came in at a miss and arrived at 18.6 for June vs 21.5 expected and 20.6 prior. The reading comes in stark contrast to the positive tone around the economy that markets started to price in, anticipating a less dovish tone from the ECB in time to come. Looking ahead, the week remains busy with UK jobs Thursday's retail sales and BoE ahead of the final Euro-zone CPI print on Friday. Eyes will also be with the FOMC and US CPI. 

EUR/GBP levels

Sell EUR/GBP for target of 0.8665 - Westpac

EUR/GBP has spiked lower to test the 0.8800 level and looking for a close sub that handle. However, for there to be anything convincing the correction, the cross will need to get sub 0.8671's short-term uptrend. A move below there could trigger losses to the 0.8609/0.8555 200 and 55-day ma according to analysts at Commerzbank. On the flip side, the analysts note hat we have the 0.8852 January high as a target, "...we will need to close above here to confirm further upside potential to 0.8987/0.9059, the 61.8% retracement and the highs from mid-October. Technically we have little to suggest that the market will sustain a move above this high, which is reinforced by the 0.8858 50% retracement of the move down from the 0.9403 spike high," explained the analysts.