EUR/USD, GBP/USD and EUR/GBP continue to slide

EUR/USD forms significant top

EUR/USD managed to rise to $1.0198 on Monday before falling out of bed on Tuesday as US consumer price index (CPI) data came in worse than expected at 0.1% month-on-month in August and 8.3% year-on-year versus an expected 0.1% fall and 8.1% rise respectively. Core inflation also increased to 0.6% month-on-month versus an anticipated 0.3% and 0.3% in July.

These higher readings led to the belief that the Federal Reserve (Fed) will pursue an aggressive monetary tightening policy to reign in soaring inflation which pushed the US dollar higher. Some market participants even expect to see a 100-basis points (bps) rate hike at next week’s Federal Open Market Committee (FOMC) meeting instead of the previously anticipated 75-bps rate hike.

On Tuesday EUR/USD took a 1.5% hit and traded back below parity which it tried to overcome on Wednesday but to no avail with the late August low at $0.9901 thus being next in line while remaining below Wednesday’s high at $1.0023. Further down lies the early-September low at $0.9865 which may soon be revisited as well.

Good resistance above parity and $1.0023 remains to be seen at the $1.0079 to $1.0097 late-July low and late-August highs. Below it, the cross retains a bearish bias.

EUR/GBP consolidates further below its July and early-September highs

On Monday, EUR/GBP rallied to £0.8722, to its June peak at £0.8721 which provoked failure, before slipping since then with UK inflation unexpectedly slowing to 9.9% in August from 10.1% in July, which was the highest reading since 1982.

It is the first time in 11 months that inflation dropped, amid a big slowdown in the cost of motor fuel prices. Having said that, core prices continued to climb to 6.3% year-on-year versus 6.2% previously.

Negative divergence remains visible on the daily relative strength index (RSI) which points to a possible toppish scenario taking shape. A daily chart close below Wednesday’s low at £0.8626 would likely lead to the £0.8584 to £0.8567 zone being revisited. It consists of the mid-July high and early September low.

Minor resistance sits at the £0.8676 early-September high with further minor resistance seen at the £0.8711 8 September high. Only a currently unexpected rise and daily chart close above the recent £0.8722 peak would provoke a significant break out of a key resistance zone and would open the way for the £0.8797 early-February 2021 high to be reached.

GBP/USD is seen heading back down towards its 37-year low

GBP/USD’s recent bounce to Tuesday’s high at $1.1738 was short-lived with it tumbling by over 1.5% amid higher-than-expected US inflation numbers which triggered the sell-off as investors priced in an even more aggressive tightening policy from the Fed to rein in soaring inflation.

The currency pair thus trades back around the $1.15 mark with the $1.1406 37-year early-September low exerting its gravitational pull. A fall through this low would lead to a four-month support line at $1.1259 being targeted ahead of the minor psychological $1.1000 level. Much further down lies the 1985 low at $1.0345.

Minor resistance above Wednesday’s high at $1.1589 lurks at the $1.1609 6 September high.