Eurozone Consumer Price Index (CPI) YoY

The ECB is expected to raise the interest rate on their next meeting on 7th Sep. The discussion is that if the rates will be increased by 50bps or 75bps ? ECB members have been preparing the markets for what could be a potential 75bps hike, despite the possibility of the Eurozone falling into a recession:

ECB’s Schnabel said that both the likelihood and cost of current high inflation becoming entrenched in expectations are uncomfortably high.

ECB’s Villeroy said that the ECB needs to get rates to neutral by the end of this year, which is somewhere between 1% and 2%.

ECB’s Rehn said a significant hike in interest rates is needed in September.
ECB’s Knot said frontloading should not be excluded and that he is leaning towards a 75bps hike.

These comments came right before the Eurozone CPI Flash, which will be released on Wednesday. Expectations are for a slight uptick to 9% YoY in August vs a July reading on 8.9% YoY. Germany released it preliminary inflation data for July. The headline was Inflation rate of 8.8% YoY and expectation of 8.8% YoY and a July reading on 8.5% YoY.

EUR/GBP has already moved above the 61.8% Fibonacci retracement and horizontal resistance between 0.8573 and 0.8584. If price can hold above the 0.8573 level, it opens the way for a move to horizontal resistance at 0.8679 and then the previous highs at 0.8721. However, notice that the RSI is in overbought territory, in indication that price may be ready to pullback.

Hawkish ECB speakers over the last few days, combined with the lack of BOE speakers, hav sent EUR/GBP to its highest level since July 6th. Will it continue to move higher ? The Eurozone releases its CPI Flash estimate for August tomorrow. A higher than expected reading could send the pair to 0.8721 in a hurry.