EUR/GBP falls as Eurozone inflation reinforces dovish ECB expectations

• The EUR/GBP slides to moving average support, with prices edging closer to the 0.8400 psychological level.
• The Eurozone's preliminary inflation figures came in below estimates, reinforcing the odds of an ECB rate cut on Thursday.
• EUR/GBP continues to monitor the economic outlook for both the UK and the EU for signs of potential monetary policy divergence.

The Euro (EUR) is suffering a setback against the Pound Sterling (GBP) on Tuesday, with prices falling to the 10-day Simple Moving Average (SMA) near 0.8415.

At the time of writing, EUR/GBP is trading below the 78.6% Fibonacci retracement level of the March-September 2022 move (from 0.8203 - 0.9254), now serving as resistance at 0.8428.

On Tuesday, the Eurozone preliminary Core Harmonized Index of Consumer Prices (HICP) continued to show signs of easing in May. On an annual basis, the core HICP advanced 2.3% agains a 2.7% growth in April, missing forecasts of 2.5%. 

With inflation falling closer to the European Central Bank's (ECB) 2% target, the ECB looks poised to cut interest rates at its monetary policy meeting on Thursday. 

Analysts are pricing in the potential for a 25-basis-point (bps) rate cut before committing to a clearer rate outlook for the remainder of the year.

For the Bank of England (BoE), a resurgence in inflation and better-than-expected economic data has provided more room for the BoE to hold back on additional rate cuts at the June 19 meeting, which could provide additional support for the Pound Sterling this week.

EUR/GBP grapples with Moving Average support

As illustrated on the daily chart below, a move below the 10-day Simple Moving Average (SMA) could provide bears with the opportunity to drive prices back to the key psychological level of 0.8400, opening the door for a potential retest of the May low at 0.8356.

In contrast, a move back above 0.8415 and above 0.8428 may allow bulls to move toward Monday's high near 0.8450.

EUR/GBP daily chart