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How stable is the EUR/GBP Range? • Levels to Watch • The EUR/GBP is trading back within its descending channel. Although we saw a significant break of the upper bound a hold at the support line re-validates the formation. The 20-Day SMA at 0.8486 remains a resistance level that must be monitored as it has served as the upper bound of the channel. Suggested Strategy |
Event Risk for U.K. and Europe
U.K. – The upcoming BoE rate decision is the upcoming major event risk for the pair despite expectations that the central bank will remain on hold. The MPC has left the door open for adding to their asset purchase program given the concerns over the impact on liquidity from the debt issues in Europe a surprise increase can’t be ruled out. However, a lack of action from policy makers could make it a non-event as post decisions statements are unlikely. The trade balance and industrial production reports will provide insight into the sustainability of the recovery. The U.K. has barely emerged from recession with growth of 0.2% and 0.3% the past two quarters and the potential remains to slip back to negative growth.
Europe – The German trade balance and industrial production reports will draw some attention after the strong factory orders release and could be a source of Euro support. Signs that demand from abroad is continuing to be a source of growth for the region’s largest economy will ease concerns over the impact of austerity measures. An ECB rate decision shouldn’t have the market moving potential that is typically associated with the event as the central bank is forecasted to remain on hold. However, it is recommended to monitor the comments from President Trichet in the post release press conference for insight into future monetary policy.
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