EUR/GBP momentum play remains in tact
City Index February 27, 2015 5:27 PM
<p>The fundamental and technical case for this forex pair is firmly aligned. The strong data turn for the UK economy, which includes services, manufacturing and […]</p>
The fundamental and technical case for this forex pair is firmly aligned. The strong data turn for the UK economy, which includes services, manufacturing and jobs, convinces that the Bank of England’s hawkish monetary policy path remains actively trodden.
Assess this against the struggling Eurozone economy – trampled by the recent Grexit fears and a central bank (ECB) that is attempting to stimulate the region through QE – which I continue to believe the ECB left no ceiling to.
The last eight weeks has seen the currency pair finish lower on the week seven times and it could be dangerous to trade against the definitive medium-term trend. The break out below 0.78 was one that many traders had been waiting for over the previous six months and whilst I do not discount the potential for a short covering induced rally, the percentage play here convinces me the likelihood is of more downside.
One footnote to this, however, is the UK budget speech on 18th March. I expect the Chancellor George Osborne to sway the UK’s economic fiscal spending towards more UK-growth-friendly investment and reposition the government as pro-business to distance itself from Labour’s current stance. The danger to sterling is any dramatic escalation in UK borrowing and a big downgrade to UK growth forecasts, which could push interest rate hikes out further and weaken the pound sterling in the interim. Trading around this event could be volatile and it may be best to stay clear.
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