Euro extends losses against British Pound as Eurozone inflation fails to impress

The Euro (EUR) heads south against the British Pound (GBP) on Tuesday, weighed by somewhat softer inflationary pressures on the Eurozone and downbeat German Retail Sales figures. The EUR/GBP pair has pulled back to 0.8560 from session highs around 0.8575 but remains trapped within the last two days’ range, supported above 0.8555.

Data released by Eurostat earlier on Tuesday revealed that the preliminary Eurozone’s Harmonized Index of Consumer Prices (HICP) grew at a steady 3.3% year-on-year (Y-o-Y) pace in August, unchanged from July and in line with market expectations. Core inflation, however, slowed down to 2.4% Y-o-Y against expectations of a steady 2.5% reading.

Before that, the Eurozone HCOB Manufacturing PMI was revised down to a 52.7 reading in August, from previous estimations of 52.7, and German Retail Sales contracted 3.4% in July, their sharpest decline in more than four years, and a significant disappointment, as investors had anticipated a 0.4% increase.

In the UK, the calendar is thin on Tuesday, and the focus is on the Bank of England’s (BoE) Governor Andrew Bailey’s speech on Friday, looking for confirmation of the market’s expectations that the bank will hike interest rates at its monetary policy meeting on September 16.

Technical Analysis: Rangebound trading continues

EUR/GBP trades at 0.8562, holding a mildly capped tone, yet with momentum indicators entering bearish territory, as the 4-hour Relative Strength Index (14) dips below 50 while the Moving Average Convergence Divergence (MACD) indicator flatlines around the zero line,

Bears are likely to be tested at the area between 0.8555 and 0.8545 (August 25, 28 and 31 lows), although the key support level is the August 12 low, at 0.8531. A break below here will confirm a multiple top between 0.8575 and 0.8585 and shift the focus towards the July 20 and 21 lows at 0.8485 and 0.8490, respectively.

On the topside, last week's highs at 0.8578, and the late July highs around 0.8585 need to be broken to confirm a bullish extension, targeting late June lows just above 0.8600.