BREXIT, EURGBP FORECAST – TALKING POINTS
- Euro may fall if Eurozone data reinforces ECB rate cut bets
- Economic data out of Europe has been tending to undershoot
- EURGBP broke above 2-year high range as Brexit risks spike
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The Euro may suffer if Eurozone economic confidence data undershoots forecasts and fuels ECB rate cut expectations. Last week, the central bank President Mario Draghi said the outlook is getting “worse and worse”, and the most recent reading of the Eurozone uncertainty gauge certainly reflects his comments. The ECB has entertained the notion of implementing rate cuts and even reintroducing QE.
Economic data out of the Eurozone has been tending to underperform relative to economists expectations with inflation remaining tepid and below policymakers’ goal. Officials at the ECB are hoping that a looser credit paradigm may stimulate economic activity and boost inflation against the backdrop of slower growth regionally and globally.
EURGBP TECHNICAL ANALYSIS
If the data falls in line with the prevailing trend of economic publications out of Europe, EURGBP may experience a pullback. Recent Brexit-related developments have caused the British Pound to fall against most of its major counterparts and subsequently led EURGBP to spike over 1.50 percent, breaking past several major resistance levels.
The pair closed at a 2-year high and experienced the largest single-day jump since November. This occurred right as the pair was beginning to come off its sugar high after closing to the upside for 11 consecutive weeks. A weaker-than-expected reading could cause the pair to cool off temporarily, though this may be offset if the UK-EU divorce outlook worsens and pressures Sterling more than the Euro.
Oscillations in political developments relating to Brexit will likely continue to be reflected in moves in Sterling. As outlined in my EURGBP forecast, this is why performing technical analysis on a pair’s whose reference currency is tied to a fundamental volatile environment is so difficult. Traders will likely wait for the dust to settle – as much as it can in this situation – before adding exposure or exiting their positions.
CHART OF THE DAY: EURGBP CLOSES AT 2-YEAR HIGH
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter