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GBP Plunges Amid Eurozone’s Disappointing Inflation Results

Published 11/01/2021, 05:51 AM
Updated 06/09/2021, 02:00 AM

The pound sterling plunged on Friday during the North American session after the macroeconomic calendar had already been empty.

At the same time, the market ignored data on the UK’s mortgage market published on the last trading day of the previous week.

The UK’s mortgage lending soared by GBP9.5 billion, well above market expectations of GBP5.1 billion. In addition, the number of mortgage approvals came at 72.6K, slightly above the forecast of 71K.

The state of the mortgage market is considered one of the main indicators of the Kingdom’s investment attractiveness. The strong mortgage lending results should have boosted sterling but were ignored by the currency instead.

Meanwhile, the UK’s consumer credit increased by just GBP0.2 billion, missing market expectations of a GBP0.8 billion rise.

United Kingdom Mortgage Lending:

Half an hour later, flash inflation rate data was published in the eurozone. Being of major importance, the results have had a profound impact on the market.

To investors’ dismay, inflation in the eurozone jumped to 4.1% versus 3.4% and was higher than the market forecast of 3.6%. Such unprecedented growth in the inflation rate along with the ECB’s unwillingness to take action led to a steep fall in the euro. Meanwhile, other currencies, through the US dollar index, followed suit.

Nevertheless, the euro tumbled several hours after the publication as the eurozone’s GDP came out in line with expectations. Thus, the economy expanded by 3.7% year-on-year in the third quarter, following a 14.2% growth in the previous period. At the same time, the eurozone’s GDP increased by 2.2% on quarter, slightly beating market expectations of a 2.0% rise.

Apparently, for many traders, that was enough to trade the euro higher until the opening of the North American session where investors started to buy the greenback en mass.

Eurozone Inflation:

Amid an empty macroeconomic calendar today and a significant plunge in price on Friday, the pair is likely to rebound.

The pound sterling tumbled by over 110 pips. As a result, the quote broke through the lower boundary of the sideways channel of 1.3730/1.3830 and touched the swing low as of Oct. 15.

The Relative Strength Index (RSI) approached the oversold zone on the H1 and H4 charts, signaling the possibility of an increase in the number of short positions.

On the daily chart, the pair is retracing from the support level of 1.3400, and the trend has reversed in the range of 1.3800/1.3830.

Outlook

Against this backdrop, the quote is likely to become flat and then bounce relative to the pivot point of 1.3665. Consequently, a reversal is likely to occur, which could have a positive impact on the volume of short positions.

Consolidation below 1.3650 is expected to give a sell signal.

In terms of complex indicator analysis, technical indicators are singling to sell the pound sterling for short-term and intraday trading.

InstaForex Group

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