Breakdown of the latest developments on the global exchanges
Aug 31, 2021, 11:16 AM GMT

Euro Area Inflation Forecasted to Pick Up in August, EURGBP Breaks Higher

Inflation growth in the Euro Area beat the forecasts

The economies of the Eurozone remain on a bumpy and uneven path to recovery while the euro attempts to strengthen. This is especially apparent against the British pound. Today's CPI numbers have bolstered the trend.

Earlier today, Eurostat published the latest estimates of Euro Area inflation for the month of August. According to the survey findings, the Consumer Price Index (CPI) rose to its highest level since November 2011.

Prices continue to rise because of heightened demand for services, alongside diminished demand for manufacturing goods. This trend has a solid reflection on the energy market and was addressed by FED Chair Jerome Powell recently.

The price action of the EURGBP pair looks poised to continue appreciating after a breakout above a Triangle

With inflation forecasted to pick up significantly in August, the euro remains on its path to recovery. As can be seen on the 4H chart above, the EURGBP is currently testing the 61.8 per cent Fibonacci retracement level at 0.85853.

The latter remains the last Fibonacci barrier, which makes it a crucially important threshold. If the price manages to penetrate above it decisively, it would then be ready to target the previous swing peak at 0.86600.

The underlying uptrend commenced following a breakout from a massive Descending Wedge, which is a type of pattern that is typically taken to signify the emergence of new bullish trends. That is why the price action is expected to break higher.

The current consolidation of the price action below the 61.8 per cent Fibonacci retracement level takes the form of a Triangle. Notice that the 50-day MA (in green) converges with the lower limit of the Triangle.

This is a type of pattern that, when found in the middle of a directional swing, usually signifies the likely continuation of the underlying trend. In other words, a potential breakout above the Triangle would substantiate the expectations for continued price appreciation.

Inflation growth beats the forecasts

According to Eurostat's findings, inflation grew by 3.0 per cent in August. This marks a sizable 0.8 per cent increase from a month prior. This is a much bigger increase than initially expected, given that the preliminary forecasts were pointing to a likely 2.7 per cent growth in inflation.

Euro Area MoM Inflation Rate Estimates