EUR/GBP Bounces on PMI Strength, Eyes on Bank of England Parliamentary Appearance
The UK's Autumn Statement, a Bank of England event and EU PMI figures could stir EUR/GBP volatility this week.
Driving the agenda for euro / sterling are the just-released European Union (EU) PMI numbers which have provided the shared currency with some lift.
The EURGBP exchange rate is up to 0.7020 on news that the composite PMI beat expectations by coming in at 54.4 confirming the Eurozone economy is expanding at a decent pace.
Nevertheless the data will not be enough to deter the ECB from using “all instruments available” to stimulate the economy further.
Economists are now expecting aggressive monetary policies to come from the European Central Bank’s policy meeting, this December and this should ensure EUR/GBP upside remains limited.
Bank of England, Autumn Statement Dominate UK Agenda
On Wednesday, November 25, UK Chancellor George Osborne is set to detail the UK government five-year spending plan.
This comes after last Friday’s very disappointing UK Public Finances, reporting government borrowing of 8.2 billion pounds, a figure not seen since 2009.
Thus, we fully expect Chancellor Osborne to feature some difficult trade-offs in an effort to meet his yearly target, as well as his 2020 target of a budget surplus.
ING states, “While we expect negative headlines to keep GBP sentiment at bay, the primary near-term focus for GBP price action has been the BoE story.
“Hence, Governor Carney's testimony to the UK Parliament today will be of equal interest. Given the fallout from the dovish Nov Inflation Report, the risks are skewed towards the Governor sounding more hawkish; we suspect he will send a strong message that a 2016 rate hike remains very much on the table.
“EUR/GBP may cement itself below 0.7000 this week.”
Commerzbank Recommend Selling EUR/GBP Rallies
Commerzbank notes that for the EUR/GBP pair, the market has held 4 times at 0.6985.
The bank’s recommended trade is to sell rallies to 0.7130, and 0.7175. Stop at 0.7200 and exit at 0.6925.
In the short-term (1-3 weeks), Commerzbank expects the pair to be offered below 0.7492.
The bank states, “EUR/GBP recently saw a break below its 4 month support line but has now spent 4 trading days above the new low at .6985.
“This new low has not been confirmed by the daily RSI, which has diverged.
“This is reflecting a loss of downside momentum and we note that the daily Elliott wave count is indicating a .7075/.7130 rally ahead of another leg lower.
“Above here initial resistance lies at .7196/98, the recent high, and major resistance continues to be seen at .7481 (this is the location of the 2013-2015 downtrend). We will maintain our bearish view while capped here.
“Beyond a rebound, it is on target for the .6937 July low and the 38.2% retracement of the move from 1971 at .6915. This remains the next major break down point.
“Failure here will target the 6571/41 2007 low.”
