Today our focus will remain on Europe as we take a look at the EUR/GBP currency pair. Throughout the greater part of October the exchange rate of this pair underwent a bearish movement. However, the downward push seems to have lost momentum and over the last seven days the pair has traded more choppily, without a clear short-term trend.
At the moment, it seems that investors trust the pound to have a bullish outlook. The reason for this lies in rising inflation rates in the United Kingdom, which have prompted prominent members of the Bank of England to talk about tightening monetary policy soon. However, considering that the BoE’s next policy meeting is next week, it seems a bit unlikely that an interest rate hike will come with so few concrete announcements leading up to it. At the same time, many market participants are operating as if the rate hike next week is all but certain (its current probability is about 60%), so if the Bank of England opts to be cautious and doesn’t adjust its policy, the pound will take a hit. The sterling can also be hurt from a preemptive rate hike, which could damage the economic recovery process in the United Kingdom if implemented too early. Thus, the pound just seems too risky at the moment, which is why it doesn’t have a very stable perspective of strengthening right now.
As for the European single currency, today will be a big day for it, with the European Central Bank holding its monetary policy meeting right now. The ECB has been a bit more open about its dovish intentions, which is keeping the euro low. Some increases in inflation, notably in Germany, have prompted speculation that the European Central Bank may opt to reduce stimulus spending but the fact of the matter is that core inflation is still below 2%. In other words, the European economy is not in danger of overheating from too much stimulus, it’s just that fuel prices are contributing to short-term inflation spikes. Still, the results of today’s meeting will be very important for the exchange rate of this pair.
In terms of the daily chart, today we have a pivot point for the pair located at 0.8441, with the pair currently trading just below it. The daily support levels lie at 0.8417 and 0.8393. The daily resistances are at 0.8464 and 0.8489. The indicators of technical analysis agree in strongly recommending a sell position today.
