Will EUR/GBP bulls be singing “The (.7390) ceiling can’t hold us” after the ECB?
City Index September 3, 2015 1:20 AM
<p>“Can we go back, this is the moment Tonight is the night, we’ll fight ’til it’s over So we put our hands up like the […]</p>
“Can we go back, this is the moment
Tonight is the night, we’ll fight ’til it’s over
So we put our hands up like the ceiling can’t hold us
Like the ceiling can’t hold us”
Macklemore, “Can’t Hold Us”
We’ve looked at pound sterling from a couple of different directions so far this week (see here and here for more), but EUR/GBP may offer the most interesting setup, especially with the European Central Bank meeting concluding tomorrow.
In all likelihood, the venerable institution will not make any changes to its monetary policy, leaving its quantitative easing (QE) program and interest rates unchanged at 0.05% (refinancing rate) and -0.20% (deposit rate). That said, ECB President Mario Draghi could still offer hints that could help handicap what the bank is likely to do in the future. Most prominently, traders will closely scrutinize any comments about the ongoing slowdown in China’s economy. Beyond China, any concern about the recent uptick/stabilization in the value of the euro could help nudge traders back into short euro trades. Finally, the ECB will also release its latest staff projections on economic growth, inflation, and unemployment, which can provide a longer-term “baseline” view of future conditions.
Technical View: EUR/GBP
Turning our attention to the chart, we can see that EUR/GBP is testing a critical resistance barrier at .7390. The unit has been rejected from this ceiling on at least five occasions over the last six months, and so far today, bears have been able to defend that key line in the sand.
Beyond previous resistance, the 200-day MA also comes in around that level at roughly .7350 and the RSI indicator is forming a small bearish divergence with last week’s high, so there are certainly a number of signs that the pair could top out here, especially if the ECB comes off as dovish.
On the other hand, if the Draghi and company do not sound particularly concerned with the recent market turmoil, a breakout above that resistance level and a continuation toward .7500 or .7600 could certainly be in play. One way or another, bulls are likely to find out if the “ceiling can’t hold [them]” in the next 48 hours.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.