EUR/GBP slowly sliding lower ahead of Eurozone inflation data on Wednesday

• The UK manufacturing PMI rose while the gauge for the Eurozone decelerated sharply in March.
• The Eurozone Consumer Price Index (CPI) is slated on Wednesday at 9:00 GMT. 
• The FX market is testing the 0.8740 level, double bottom, and March 28 low. 

The EUR/GBP is trading at around 0.8753 down 0.41% on Tuesday as market participants are starting to focus on the flash inflation reading for March in the Eurozone which will be released on Wednesday. Deceleration of the Eurozone manufacturing activity index in the Eurozone plays a dominant role as UK manufacturing picked up slightly. 

Earlier in the European session the UK manufacturing Purchasing Managers’ Index (PMI) accelerated in March at 55.1, up from 55.0 in February. The output in the United Kingdom keeps growing and the cost pressures have eased, “all spelling good news for UK manufacturers” according to Rachael Kinsella analyst at Halo Financial. 

However, the UK Manufacturing PMI is still at a 1-year low. In the UK, the Brexit and a cyclical downturn are still weighing negatively on the British pound, additionally “Europe has a massive internal market that companies can depend on for growth. The UK, by contrast, is fragmenting within itself, specifically in Northern Ireland and Scotland, and needs exports to grow. If an EU-UK trade war breaks, the UK is in a much less desirable spot then Europe.” according to Peter Rosenstreich, the analyst at Swissquote.

Meanwhile, the Eurozone final manufacturing PMI matched analysts' expectation at 56.6 in the final reading in March. In Germany, the final manufacturing PMI decreased to 58.2 in March from 60.4 seen in February, with manufacturing output growth slowing down to a 15-month low. “Although the manufacturing PMI remains at an elevated level by historical standards, a third consecutive drop in the index signals slowing momentum in German factories,” the author of the report and principal economist at IHS Markit Phile Smith wrote in the report. 

EUR/GBP 4-hour chart

The EUR/GBP is trading below its 50, 100 and 200-period simple moving averages on the 4-hour chart and is currently attempting to form a double bottom with the March, 28 low at 0.8733; the level should provide some support. If the level fails, the next support is seen at 0.8709 swing low which is also the 61.8% Fibonacci retracement from the March, 22-27 upmove. The cyclical low is seen at 0.8668 on March, 22. On the flip side, resistance is seen at the 0.88 figure and 0.89 supply level.