Soaring inflation continues to be the most talked-about topic on the market right now, and it is the primary determinant for the price action of most assets. Currently, the euro is consolidating against the pound. To read more about the present state of the single currency, have a look at our latest EURUSD analysis.
The Office for National Statistics revealed that headline inflation in the UK rose to 5.5 per cent in January, topping a thirty-year peak and beating the market forecasts. It is already being speculated whether this would prompt the BOE to adopt an even more hawkish policy stance following this month's rate hike.
As can be seen on the 4H chart above, the euro rose marginally against the pound after the report was released. Nevertheless, the bearish sentiment continues to prevail as a new downtrend was commenced following the breakdown below the Descending Triangle.
The pullback may test the 38.2 per cent Fibonacci retracement level at 0.84060, but given that it is currently converging with the 50-day MA (in green) and 300-day MA (in purple), a breakout seems improbable. On the other hand, a reversal from there could be followed by a retest of the 23.6 per cent Fibonacci at 0.83599. That is if the price action manages to break the 100-day MA (in blue) and 200-day MA (in orange).
The major target for the new downtrend would be the last swing low at 0.83120, which has been tested several times already but has held on each occasion.
According to the latest CPI report findings, headline inflation edged higher to 5.5 per cent in January, above market expectations of 5.4 per cent. This performance represents the third consecutive monthly rise and underpins the bumpy and uneven pace of recovery.