Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. In the past week or so we have observed the pair recover to its highest level in about a month, but now the rate is beginning to move down again.
The overall bias for the British pound sterling at the moment is a bit bearish, despite the strengthening we are seeing today. The recent strength of the pound was due to hopes that the Bank of England would join the small, elite club of regulators that have already begun tightening their monetary policies. Even this week’s movement of the sterling is tied to the fact that the Bank of England is meeting today to decide its next course of action. But for now, due to disappointing results in some fundamental reports from the United Kingdom and an abundance of caution within the BoE, it is expected that only three out of nine members voting would support an interest rate hike. Thus, this kind of tightening seems very unlikely this month. Asset purchases are also expected to remain at the same volume of 875 billion pounds. The pound is thus likely to stay a bit weaker than expected because investors had hoped for a more hawkish stance.
As for the European single currency, it is also suffering due to the ECB’s dovish position, but investors are a bit more used to it. The European Central Bank has maintained a loose approach to monetary policy for years now and market participants are not surprised by its insistence that stimulus will continue to be necessary to support the European economy for the foreseeable future. Thus, while both the euro and the pound can be weakened by dovish policies, it is a less surprising situation for the EUR than it is for the sterling.
Update: the actual Bank of England vote was two in favor of a hike and seven against, which is more dovish than expected. Thus, the rate of the pair turned bullish quickly and the euro is now in charge.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8489, with the pair currently trading above it. The daily support levels lie at 0.8464 and 0.8446. The daily resistances are at 0.8507 (overcome) and 0.8532. The indicators of technical analysis agree in strongly recommending a buy position today.
