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We step away from the loud noise out of North America this afternoon and take a look at EUR/GBP which has seen some interesting moves over the past few sessions.
Pressure has been building over the last few months for a strong break above 0.8850 and the Bank of England’s deputy governor, Ben Broadbent gave the market the ammunition it wanted to head higher when he said he was ‘not ready’ to tighten monetary policy.
With the MPC on a knife edge in terms of hawks to doves for the first time in many years, the expectations were that Broadbent would be the swing voter that sided with the external members voting for a hike. By also casting his concerns on Brexit ‘imponderables’, this was enough to push EUR/GBP through this long-term barrier.
The credit ratings agency, Moody’s also boosted the pair yesterday stating that it sees UK growth declining this year and next, and with it the UK sovereign rating could be downgraded if the ‘core elements’ of the UK’s current access to EU Single Market aren’t maintained.
If we step back and look at the daily candle chart, this shows prices have bounced strongly from April’s year-to-date low at 0.8297 which also tied in with November’s low. The gap after the first French Presidential election was filled but since May, the single currency has charged higher up 500 points. Prices made an ascending triangle over the course of last month and the break of this, whilst also being a long-term structural level, means we should head for October 2016 highs above 0.90.
EUR/GBP Daily Candle Chart
That said, today’s price action gives us cause for concern. The strong rejection of yesterday’s move looks like forming a classic 2 bar reversal pattern and it is notable that these reversal indicators are best found in strong trends where there is strong support or resistance.
With this in mind, we will watch this pair with keen interest as the potential 2017 top made today could well mean prices drift back to the 150 point range made over most of June. However, EUR/GBP has seen a strong ‘buy-on-dips’ mentality and with this, monitoring the Bank of England’s voting bias, especially the new member Tenrero will be key going forward.
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