Central Bank Statements:
This was a key week for the EUR/GBP. We had both the European Central Bank and Bank of England vote on monetary policy. Let’s review briefly.
The ECB held its minimum bid rate at the historic low of 0.05% and. It expressed its sit and wait approach, but the market sees that it is gearing up for QE. At this point, it seems like a 50/50 chance we will see QE at the end of the year or early 2015, if the European economy continues to slow down, and if inflation remains subdued.
The BoE held its benchmark interest rate at 0.50%, and maintained its asset purchase program at £375bn. Its plan of raising rates late 2014, or early 2015 has been impeded by the growing uncertainty in Europe. The BoE is thus likely going to extend the waiting period to at least the middle of 2015.
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Initial Reaction Being Reversed: The EUR/GBP reacted initially to these 2 central bank risks by falling from the 0.7863 consolidation high, all the way down to the 0.78 consolidation low. It has since rebounded, and is showing resilience against the initial bearish reaction.
Bearish Scenario: The middle of this week’s consolidation range is the 0.7830-0.7840 area. This is the central pivot area, and if the EUR/GBP is bearish, it should remain below this area. In other words, after a brief violation today, if EUR/GBP falls back below 0.7830, the bearish continuation scenario is still in play. In this scenario, the 0.78 low on the month and the 0.7767, low on the year will be in sight.
Bullish Correction: Otherwise, if price can hold above 0.7840, it is pressured toward the 0.7863 high.
A break above 0.7865 completes a price bottom. Then again, we need to see if price can hold above the 0.7830-0.7840 area on a pullback, which might happen when price tests some support/resistance factors around 0.7875.
Resistance Levels: If a price bottom is confirmed with price hold above 0.7830, there is upside risk toward the 0.7905 area, which represents a support/resistance pivot area seen in the daily chart. Above 0.7905, the 0.7980 is another support/resistance pivot, but the most important resistance will be around 0.8050. Unless price breaks above 0.8060, the 2014-down trend is still intact.
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