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EURUSD up on ECBspeak

Market Analysis

EURGBP, H4 and Daily

ECB’s minutes showed that officials are worried about adverse market moves as response to policy comments, which explains, while Praet and Draghi still kept the easing bias on QE in place, even though tapering is expected to start early next year. The problem is that with the ECB officially not even in neutral but at the same time global policy makers indicating that monetary policy support has peaked, the dovish signals don’t hold much credence as they don’t change the feeling that the central bank is heading for exit steps in 2018. And with the usually dovish Villeroy adding to warnings that non-standard measures are not “eternal”, the French 10-year is up nearly 10 bp now, the Italian and Spanish up 12 bp on the day, with yields moving higher across the board, the short end meanwhile is outperforming a tapering of asset purchases is expected to hit mainly the long end and the ECB so far sees rate hikes only after asset purchases have been phased out.

Euro strengthened after ECB member Villeroy said that the prevailing non-standard policy is “not eternal,”with EURUSD lifted above 1.1360. Sterling has steadied after drifting lower by between 30 and 50 pips against the G3 currencies from London AM highs. Big picture, the BoE’s broad trade-weighted measure of sterling stood at 77.11 as of June 30, down over 9% from levels prevailing ahead of the Brexit vote in June last year, and off by over 19% on the average level seen since 1980. Cable, although well up from trend lows, remains 12.5% below pre-Brexit vote levels. The weakness in the pound drove CPI to 2.9% y/y in May, up from 0.3% y/y seen in May 2016. This, along with a more expansive fiscal stance of the government, has BoE MPC members looking to at least reverse the 25bp rate cut of last August, which took the repo rate to a record low 0.25%, even as the UK outlook remains somewhat blighted by political and Brexit uncertainties.

However, after today’s ECB’s comments, a new trade was taken for EURGBP. The break of the 0.8800 level, also the last upwards factal and lastly three bullish candlesticks noticed on a 4-hour chart, triggered us a Long position with entry at 0.8803.  Target has been set near last week’s high and alsio according to ATR (14) in the Daily Chart, i.e. 0.8850 and 0.8880. Meanwhile an intraday target was also set at 0.8830 Support set at 0.8730, which is also the 200-period EMA in the 4-hour chart.

In the 4-hour chart, Parabolic SAR turned positive, while RSI is at 62 sloping upwards. The break of the 50 period EMA and of the upper Bollinger pattern reinforce our Long position decision.

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Andria Pichidi

Market Analyst

HotForex

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