- Its all eyes on the ECB, the UK’s budget this week and whether the BoE will coordinate stimulus with the government.
- EUR/GBP struggles below a 50% mean reversion target.
EUR/GBP is currently trading off its highs and below a key resistance area as bears step to the plate leaving a series of bearish pin bars on the daily charts ahead of key risk events this week. At the time of writing, EUR/GBP is trading at 0.8752 having been as high as 0.8780 (5 pips below resistance 20th Sep 2019) and a low of 0.8680.
Fundamentally, the cross is entering a risk period on the calendar with the UK’s budget on Wednesday and the European Central Bank on Thursday, both of which have the ability to send shock waves through the cross considering all that is at stake.
BoE and ECB in focus
First of all, the UK’s Chancellor looks set to unveil measures to help firms affected by the coronavirus outbreak, although traders are looking for a twist to this year’s budget from the Bank of England as well and some coordinated action with the government. A surprise rate cut would be the ultimate market event for sterling, but the most we might expect from a collaboration would likely rest at some form of a targeted scheme to help reach affected businesses. Incoming Bank of England Governor Andrew Bailey has been outspoken with respect to a coordinated effort in recent remarks when he said that some form of supply-chain finance was going to be needed rapidly.
As for the ECB, fundamentals are still looking strained for the eurozone economy considering the impact of the coronavirus with Italy once again threatening to be the fault line in the Eurozone. Hopes that the ECB could offer support through an asset purchasing programme, as well as a rate cut, is starting to weigh on the euro and today’s data that showed that the Eurozone grew a better than expected 1.0% YoY in Q4 has done little to prevent the bears stepping up to the plate. Markets remain of the mind that the Eurozone will fall into recession this year, with Italy set to lead the pack lower. The euros recent advance was technical, with short covering piling up on due to an exodus of the emerging market-FX and carry trade.
From a technical perspective, EUR/GBP has faced pressures on the bid towards a 50% retracement of the Feb rally with a volume profile anomaly whereby volume has spiked to extraordinary highs although the price dropped to leave bearish pin bars. The event has taken place below the Sep support structure around 0.88 the figure and a break below 0.87 the figure, the recent rally’s Point Of Control (POC), will open prospects of a run back towards The August-2020 POC at 0.8525 (50% mean reversion of Feb’s rally).