EUR/GBP drops back below 0.8800 ahead of Eurozone GDP

• EUR/GBP reverses the previous day’s corrective bounce off one-week low.
• Euro struggles to defend hawks after downbeat German data challenge hawkish ECB bias.
• IMF’s warning over the UK’s economic conditions challenge EUR/GBP bears.
• Preliminary readings of Eurozone Q4 GDP will be crucial for immediate directions, ECB vs. BoE battle eyed.

EUR/GBP remains depressed around 0.8780, fading the week-start recovery, as traders await Eurozone Q4 GDP for fresh impulse during early Tuesday.

The cross-currency pair managed to begin the key week comprising central bank announcements on a positive side amid fears of the UK drama over tax cuts. However, downbeat prints of German GDP, later on, weighed on the prices.

That said, Economic Sentiment Indicator for the Euro area improved to 99.9 in January from an upwardly revised 97.1 prior and 97.0 market forecasts. The Consumer Confidence, however, matched 20.9 market forecast and previous readings during the stated month. That said, the Industrial Confidence and Services Sentiment also improved during January.

On the other hand, the preliminary readings of Germany’s fourth quarter (Q4) Gross Domestic Product (GDP) came in softer than 0.0% expected and 0.4% prior to -0.2% QoQ. "After the German economy managed to perform well despite difficult conditions in the first three quarters, economic performance slightly decreased in the fourth quarter of 2022", Destatis noted in its publication. The same raises fears of downbeat Eurozone GDP and challenges the EUR/GBP buyers.

Alternatively, the International Monetary Fund’s (IMF) downbeat economic projections for the UK seem to keep the EUR/GBP on the front foot. As per the latest forecasts, the IMF projects the British economy will mark the weakest performance among the Group of Seven (G7) nations.

Also read: IMF: Emerging markets growth slowdown bottomed out in 2022, but risks remain

Looking forward, the first readings of the Eurozone Q4 GDP, expected 0.0% QoQ versus 0.3%, will offer immediate directions to the EUR/GBP and is likely to witness further weakness unless marking a surprise. However, major attention should be given to Thursday’s monetary policy meetings of the European Central Bank (ECB) and the Bank of England (BOE) for clear directions.

Technical analysis

Although a convergence of the 100-DMA and the 50-DMA provides strong support to the EUR/GBP price around 0.8740-35, recovery remains elusive unless the quote stays below a 12-day-old resistance line, close to 0.8830 at the latest.