The EUR/GBP currency pair presents a modest but macro-supported bullish opportunity as the Eurozone shows signs of resilience while the UK economy continues to struggle with stagnant growth, declining sentiment, and worsening fiscal dynamics. While technical momentum has cooled recently, the broader macro backdrop still favours euro appreciation relative to the pound.

Fundamental Analysis

Eurozone GDP rose by 0.4%, up from 0.2%, while the UK barely eked out 0.1% growth. Annual growth figures are relatively close (Eurozone 1.2%, UK 1.5%), but the trend favours the Eurozone as the UK flirts with stagnation. Forward-looking indicators show that Eurozone demand is holding up more robustly.

Inflation readings also support the euro. Eurozone MoM inflation jumped to 0.6%, with YoY at 2.2%, while the UK’s YoY rate cooled to 2.6%, and MoM inflation slowed to 0.3%. With inflation accelerating in the Eurozone and decelerating in the UK, the policy bias favours a more cautious European Central Bank, while the Bank of England may be forced to ease sooner. This divergence supports EUR strength in the near term.

Trade and current account metrics also favour the euro. The Eurozone boasts a massive trade surplus of €23.98 billion and a current account surplus of 2.8% of GDP. The UK, meanwhile, faces a trade deficit of -£1.96 billion and a current account deficit of -2.7% of GDP. These structural imbalances continue to weigh on sterling’s valuation.

From a fiscal standpoint, the Eurozone’s government budget stands at -3.1%, better than the UK’s -4.8%. Government debt is also slightly lower (Eurozone 87.4% vs UK 95.9%), and while not dramatic, these differences align with the broader theme of UK underperformance.

Sentiment Analysis

UK consumer confidence deteriorated significantly, falling to -23, compared to the Eurozone’s -16.7. The divergence, though both negative, reflects a more rapid deterioration in the UK.

Business sentiment data further underscores this view. The UK’s business confidence fell sharply to -33, compared to -0.67 in the Eurozone. While both economies face challenges, the perception of the UK’s economic trajectory is more negative.

PMI data also supports a stronger Eurozone narrative. While both regions are showing sub-50 manufacturing PMIs, the Eurozone’s manufacturing PMI improved marginally to 48.7, whereas the UK’s remained very weak at 45.4. Services PMIs are also higher in the Eurozone at 49.7 compared to the UK’s 48.9.

Retail sales were modestly better in the UK at 0.4%, compared to 0.3% in the Eurozone. However, this was not enough to offset the downward momentum in other indicators. The combined sentiment picture suggests the UK is deteriorating faster than the Eurozone, supporting a pro-EUR bias.

Technical Analysis

EUR/GBP has recently pulled back from its March highs near 0.8650, and now trades around 0.8499, sitting inside the Ichimoku Cloud. This indicates a neutral technical structure, with no clear directional momentum currently confirmed.

The Tenkan-sen (0.8531) remains above current price, signalling short-term resistance, while the Kijun-sen (0.8491) is acting as immediate support. A close below 0.8490 would shift momentum to the downside, but a rebound from this level could confirm it as a pivot point for bullish continuation.

The future Kumo is bullish, with Leading Span A at 0.8539 above Span B at 0.8490, offering a forward-looking signal of potential bullish momentum. However, this signal remains unconfirmed unless price re-enters a bullish structure above the cloud.

Momentum indicators are weakening. The RSI has slipped to 49.51, reflecting fading bullish strength. The MACD has turned negative, suggesting further consolidation or retracement in the near term.

Price action shows a descending channel following the rejection at 0.8650, but the structure remains corrective rather than impulsive. If the pair holds above 0.8480–0.8490, and manages to clear 0.8530, it could resume its broader uptrend.

Conclusion

The macro and sentiment backdrop continues to favour the euro over the pound. The Eurozone’s stronger trade balance, improving inflation dynamics, and relatively stable business sentiment provide a firmer footing than the UK’s stagnating growth, deteriorating confidence, and widening fiscal deficit.

Technically, the market is consolidating, and while momentum is neutral at present, the bullish Ichimoku structure in the forward cloud supports the case for medium-term EUR strength. A break above 0.8530 would reassert upside control, while support near 0.8490 is critical for EUR/GBP.

Overall, this remains a constructive trade idea with moderate conviction, especially if price stabilises above the Kijun and sentiment divergence persists.

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