EUR/GBP Range Holds True To Form

Trading Tip – Completion of a bailout package for Greece could generate Euro support and threaten our trade.  However, there is a growing concern that measures taken will fall considerably short of solving the problems for the region, a weak attempt may be frowned upon by markets and lead to weakness for the single currency. Considering the level of cooperation that will be needed to generate the necessary solution for the Euro-area, a bearish bias appears warranted. However, sterling may have its own trouble generating support with the BoE leaving the door open for more quantitative easing. Next week’s rate decision could be a supporting factor for the pair diminishing potential for profits. Markets have quieted following the Fed’s decision to raise the discount rate which increases the likelihood that the current range could hold. A looming U.S. labor report could leave these events with the most market moving potential beforehand. Additionally, positive Euro sentiment should be monitored as another failed attempt to break above the 200-Day SMA could provide a better entry point a greater potential for profits.

Event Risk for Europe and the U.K.

Europe – The German IFO survey and unemployment report present considerable event risk as the region’s largest economy is one of its few bright spots. A decline in business sentiment could be the first sign that the current deficit issues are having a negative impact on the broader region. The release is often market moving but may be overlooked with the looming employment and inflation data. German unemployment is expected to have risen by 16,000 in January and could be evidence that dissipating government stimulus is beginning to slow growth. The most significant release on the week will be January’s consumer price report. Early forecasts are for a rise to 1.0% from 0.9%, which should be a negative for Euro bulls. The ECB is steadfast in its conviction to remain on hold without inflation threatening their 2.0% target.

U.K. – Any U.K. fundamental data may have little impact on price action ahead of next week’s rate decision. Yet, this week does provide insights into the housing sector with Nationwide Home prices and BBA loans for home purchase reports scheduled for release. The BoE’s major concern is that credit markets remain tight and a surge in borrowing could bring an end to their asset purchase program. The second reading of 4Q U.K. GDP should be watched for any revisions, forecasts are for an improvement to 0.2% from 0.1% which would further the case for an end of QE.