EUR/GBP gains traction to 0.8800 handle on decelerating UK inflation

• The UK inflation decelerated below forecast sending EUR/GBP to the 0.8800 handle in combination with softer economic activity in the Eurozone according to flash PMI in May.
• The risk-off market sentiment is driving the European majors lower as the US President sees little chances of successful US-China trade talks.
• European Central Bank Monetary Policy Meeting Accounts are due on at 11:30 GMT while Bank of England’s Governor Mark Carney’s speech is slated for 17:00 GMT on Thursday.  

 Ther currency cross established an intraday low at 0.8739 in early European trading after the Eurozone PMI fell below estimates and then the cross reversed course as the UK's inflation fell short of expectations. EUR/GBP is currently trading at around 0.8780 up 0.12% on Wednesday at the time of writing.

Earlier in Europe, the Eurozone composite PMI in May decelerated to 54.1 versus 55 expected by analysts while the German version of the data also disappointed the market at 53.1 versus 54.7 forecast. The less popular French PMI also came below estimates. The news was bearish for the Euro as it lost value against the British Pound and the US Dollar alike. This is another disappointing macroeconomic indicator for the Eurozone as euro bulls are wondering how the European Central Bank (ECB) will be able to deliver a rather hawkish message in its Monetary Policy Meeting Accounts on Thursday at 11:30 GMT let alone at its next meeting in June. 

Concerning the tapering of the Quantitative Easing “in our view, new uncertainty on the back of weaker economic data, higher oil prices and Italian politics argue in favor of buying more time,” explain analysts at ING talking about the next ECB meeting in June.

Later in the day, it was the UK inflation data which disappointed the market with Consumer Price Index decelerating to 2.4% y/y while core inflation decelerated to 2.1% y/y in April, both measures coming out below estimates. This is yet another miss on the UK data and another blow for GBP bulls which see the potential for a rate hike in the summer slowly vanish as the Bank of England is data-dependent.

In the near future, investors will also pay attention to the speech of Mark Carney, Governor of the Bank of England and Chairman of the Monetary Policy Committee. It is scheduled for Thursday at 17:00 GMT and another reiteration of dovish comments can weigh on GBP. 

GBP/JPY 4-hour chart 

The EUR/GBP currency cross trend is rather neutral as the 100-period and 200-period simple moving average (SMA) on the 4-hour time-frame are trading relatively flat. Supports are priced in at 0.8740 demand zone and at 0.8712 swing low while resistances are seen at 0.8799 high of the day and at the 0.8844 swing high.