EUR/GBP moved lower following the strong labor data

EURGBP

The dollar traded higher against almost all of its G10 counterparts during the European morning Wednesday. It was lower against NOK and AUD, in that order, while it was stable vs GBP.

The UK’s unemployment rate remained unchanged at 6.0% in October, its lowest level since September 2008. More importantly, average weekly earnings including bonuses rose 1.4% yoy, up from +1.0% yoy in September and higher than expected. The figure was the most important development as it was higher than inflation and therefore real wages are growing. At the same time, the Bank of England released the minutes of its early December policy meeting. The vote remained 7-2 in favor of no change in interest rates. The majority saw heightened risk that growth may soften more than expected or that inflation may stay below target for longer than expected. The latter risk has been intensified by the collapse in oil prices.

EUR/GBP moved lower following the strong labor data but the move was halted few pips above the 200-period moving average. I would expect the rate to test the 0.7910 (S1) support line, where a break of that hurdle could trigger further extensions towards our next support of 0.7880 (S2) line. Our short-term momentum studies support this notion. The RSI crossed the 50 line and is pointing down, while the MACD, crossed below its trigger line and is also pointing down. Although these signs designate accelerating bearish momentum, I would wait for a break below the 0.7910 (S1) support level to get more confident for the decline. On the daily chart, although the overall path of the pair is to the downside, it seems to be forming a symmetrical triangle formation reflecting investors’ indecisiveness in recent months. Usually, symmetrical triangles are thought of as a continuation pattern and a break in either direction is likely to determine the subsequent bias.

• Support: 0.7910 (S1), 0.7880 (S2), 0.7865 (S3).

• Resistance: 0.7935 (R1), 0.7950 (R2), 0.7970 (R3) .