Euro Latest: EUR/USD, EUR/GBP Price Action Set-Up for ECB
- ECB Unlikely to Provide a Surprise
- EUR/USD Supported on Dips to 1.20
- EUR/GBP Recovering From Last Week’s Reversal
EUR/USD: Today’s ECB meeting is unlikely to stir much in the way of volatility as implied vols signal a breakeven (implied move) of 44pips. Since the last meeting, newsflow has been lacking somewhat with the Euro largely recovering amid a narrowing of bond spreads in favour of the Euro, alongside the EU’s rate of inoculations improving and thus taking EUR/USD back above the 1.20 handle. With no update to economic projections (until June), today’s meeting be about taking stock of the current backdrop, needless to say, the meeting should have a limited impact on the Euro.
Yesterday’s drop in the Euro had been short-lived as dip buyers defended the 1.20 handle, an encouraging sign for bulls. However, with the 100DMA remaining firm, the pair looks to be consolidating. The level to watch on the downside will be 1.1990 (prior resistance, now support), should this give way eyes will be on 1.1956 and 1.1925 where the 50 and 200DMA reside respectively. On the topside, key resistance sits at the 1.21 handle, which also coincides with the 61.8% Fibonacci retracement of the YTD range. While the pair is consolidating in the near term, dip-buying at key areas of support keeps the outlook positive and it will take a close below the 200DMA to negate this view.
EUR/USD Chart: Daily Time Frame
Watch the Spread: EUR/USD vs US/GE 10YR Bond Spread
EUR/GBP: The cross has continued to recover from last week’s reversal as EUR/GBP trades at 0.8660. That said, firm resistance situated at 0.8700-0.8720 is likely to cap rallies in the short-term and prompt renewed pressure in the cross back to 0.8600. Alongside this, as I have said previously, real yields between the UK and EU continue to point to lower levels for the cross and thus I remain bearish on EUR/GBP for a move back towards the mid-0.85s. Although, this view would be reassessed should the cross breach 0.8730-35. A point to note is that we are now approaching the Scottish Elections and while I am of the view that this will have a limited impact on the Pound, I suspect a slight political risk premium will be attached to the Pound in the next few weeks.
EUR/GBP Chart: Daily Time Frame
UK/GE Real Yield Spread
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