Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. So far, the exchange rate has stuck to the bearish trend that began on September 30. The pair has fallen to its lowest level in about 20 months to trade around 0.8430.
The British pound could potentially strengthen more, depending on how fundamental factors play out in the near future. Investors have been betting on an increased probability of an interest rate hike before the year’s end, perhaps as early as November, for some time now, and got some hawkish reassurance from the Bank of England, where a number of governors now believe measures need to be taken soon to prevent inflation from climbing to dangerous levels. Complicating matters is the fact that the September inflation reports, published yesterday, all failed to meet the forecasts. Thus, it appears that for now inflation is not in danger of getting out of control, which may reduce the bets on a rate hike. The Bank of England’s decision will ultimately rest on how other crucial data behaves in the coming weeks, but overall we expect the pound to remain quite volatile as investors try to gauge the current sentiment of the regulator.
As for the European single currency, it may strengthen against the pound if economic reports from the United Kingdom disappoint. Data from Europe has been in line with the forecasts so far, which shows that the EU’s economy is a bit better behaved right now, or at least more predictable than the situation in the UK. That being said, the European Central Bank seems more dovish than the Bank of England, so if the markets become increasingly more confident that the United Kingdom will see a rise in interest rates, then the euro will continue to weaken versus the pound.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8437, with the pair currently trading just below it. The daily support levels lie at 0.8412 and 0.8397. The daily resistances are at 0.8452 and 0.8477. The indicators of technical analysis agree in strongly recommending a sell position today.
