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Euro Cross Pick 11.12.2012

Euro Cross Pick 11.12.2012

David Song, Strategist

As the U.K. Consumer Price report is expected to show heightening price pressures in the U.K., we may see the British Pound regain its footing over the next 24-hours of trading as market participants look towards the Bank of England’s (BoE) quarterly inflation report due out later this week. As faster price growth dampens the central bank’s scope to expand its balance sheet further, we will be keeping a close eye on the EURGBP, and the pair may fall back towards the 100-Day SMA (0.7960) should the report raise the long-term outlook for inflation. At the same time, headlines coming out of the euro-area may continue to drag on the single currency as the EU races against the clock to avert a Greek default, and we anticipate to see the EURGBP resume the downward trend from earlier this year as the governments operating under the fixed-exchange rate system become increasingly reliant on monetary support. In turn, the deviation in the policy outlook continues to reinforce our bearish forecast for the pair, and the euro-pound looks poised to threaten fresh yearly lows as it carves out a top around the 78.6% Fibonacci retracement from the 2008 low to high around 0.8140-50.

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