EUR/GBP: head and shoulders and market top?

EUR/GBP is currently retracing the rebound of end of April's business and was making hard work of a recovery through 0.7920 for the majority of May so far.

EUR/GBP is stalling and the bear have taken back control. GBP/USD has been recovering this week and broke the 20 dma at 1.4472, while EUR/GBP's spike in Asia last night was short-lived and supply met the bid at the 100 sma on the 4hr stick for the price to fall back to 0.7820 support today. Fundamentally, the data for the UK was weak and CPI falling short of expectations. However, the Bank of England predicted this in its latest inflation report and thus should not come as much of a surprise to policymakers.

Lloyds broke this down here: UK: April’s inflation decline has little implications on policy outlook - Lloyds

Analysts at ING Bank explained that if the UK votes to remain in the EU, then they expect the next move from the BoE to be a hike, although went onto to say the timing of this depends on how quick any post-referendum activity rebound takes to materialise. "We feel that there may be some lag involved and as we discussed in our Monthly Economic Update last week, expect the first move to come in the first quarter of 2017. If the UK votes to leave the EU, then we think the BoE may choose to cut rates to shore up confidence, even though the likely plunge in sterling may add to medium-term inflation pressures."

We now look ahead to EZ CPI, FOMC minutes and UK labour market report, while for Thursday, we have UK retail sales data and more importantly,

EUR/GBP levels

"We suspect that this is a head and shoulders top developing and if we are right this will be confirmed on a close below 0.7770," explained analysts at Commerzbank.

"We view the currency pair as having topped recently at 0.8116. Immediate downside pressure will be maintained while no rise above the mid-April high at 0.7992 occurs. Minor resistance below this level can be seen between the 0.7896 February 11, 0.7927 February 25 and the 0.7945 March highs."