The UK has entered a technical recession according to preliminary data released today. In the fourth quarter, the UK economy shrank by 0.3%, worse than expected (0.1%). Following yesterday’s unexpectedly cold inflation data, which showed a 0.6% price decrease in January, the GBP’s advantage over the EUR might be in danger.

(EURGBP Daily Chart)

Currently, EURGBP is falling within a descending triangle formation, with 0.85 being the key level. Now, with colder inflation and the technical recession, EUR might gain an advantage, at least in the short term. After testing 0.85, the direction seems to be turning northward. Additionally, bullish divergence from the RSI also supports the upward scenario. 0.8560 is the resistance to watch for an upward breakout that might lead EURGBP to the 200-day moving average and then potentially to the upper line of the triangle. EURGBP bears should watch for a break below the 0.85 support for any downward moves.