Trade of the Week: EURGBP bears ready pounce?

• Euro ↓ on political jitters

• EURGBP hits 22-month low  

• UK Jobs report & EU data in focus

• Technical level –  0.8500

• Bloomberg FX model – 80% - EURGBP - (0.84065 – 0.85327)

Euro bears are back in action thanks to political uncertainty linked to the European Parliament elections.

The second most traded currency in the world is down against most of its major counterparts as of writing.

But our attention falls on the EURGBP which gapped to a fresh 22-month low at Monday's Asian open!

The lowdown…

The euro seems to be gripped by political jitters in Europe.

Over the weekend, French President Emmanual Macron dissolved parliament and called for snap elections by the end of this month after his big defeat by the far right. Given how far-right parties have made big gains in the EU elections, this development has raised questions about Parliament's ability to form the majorities needed to drive policy. In a nutshell, uncertainty over Europe's political future could keep euro bears in the game. 

Looking beyond politics, here are 3 factors that could move the EURGBP this week:

    1) UK data dump

In the United Kingdom, the latest jobs data and industrial production figures could influence expectations about when the Bank of England will cut rates.

• Tuesday 11th June: UK May jobless claims, April unemployment rate

• Wednesday 12th June:  UK Industrial & manufacturing production

Traders are currently pricing in a 64% probability of a 25-basis point cut by September with a move fully priced in by November.

• Should overall data from the UK exceed market forecasts, this could push back BoE rate cut bets – dragging the EURGBP lower.

• Weaker-than-expected data may fuel BoE rate cut expectations that send the EURGBP higher.

Golden nugget: Over the past year, the UK jobs report has triggered upside moves of as much as 0.25% or declines of 0.23% in a 6-hour window post-release.

    2) EU data

Last week, the European Central Bank (ECB) cut interest rates for the first time since 2019.

The central bank clarified that a “data-dependent” approach will be adopted when considering future policy moves. This could increase the euro’s sensitivity to economic data, especially if it impacts ECB cut bets.

It may be worth keeping a tab on the Germany CPI (final) and Eurozone industrial production figures this week.

Traders are currently pricing in a 57% probability of a 25-basis point cut in September with this jumping to 77% by October.

• The EURGBP could close the gap if data from Europe prints above market forecasts.

• Should overall data disappoint, the EURGBP could extend losses as ECB cut bets rise.

    3) Technical forces

The EURGBP is under pressure on the daily charts with prices trading below the 50, 100, and 200-day SMA. However, the Relative Strength Index (RSI) has hit 30 – signalling that prices are oversold.

• Sustained weakness below 0.8500 may encourage a decline towards 0.8400.

• Should prices push back above 0.8500, this may open a path towards 0.8530.

Bloomberg’s FX model points to an 80% chance that EURGBP will trade within the 0.84065 – 0.85327 range over the next one-week period.