By FXEmpire.com

With the big BoE meeting coming up on Thursday markets are moving to be prepared for the outcome. The consensus is that Governor King will hold on rates and monetary policy, if this is the case then the BoE is not required to make any statements. If they make any changes they have to present a public statement on the state of the economy and the reasons or their views for the changes.

Monday was the annual spring bank holiday so, UK markets were closed. Trading in the EUR/GBP cross rate was driven by the global reaction of the euro to the outcome of the French and Greek elections. EUR/GBP dropped below the 0.8068 support, but jury is still out whether this break will be confirmed.

EUR/GBP fell lower at start of trading in Asia on Monday morning and the pair reached a new correction low at 0.8036. However, during the morning session in Europe, the reaction to the outcome of the election results in Greece and France was remarkably orderly. Equities opened sharply lower but the losses were gradually reduced throughout the session. The euro succeeded somewhat of a similar pattern. EUR/GBP tried to regain the 0.8068 area during the afternoon trade, but the attempt didn’t succeed. To summarize, EUR/GBP recorded some moderate losses in the wake of the recent political developments in the EMU, but as was the case on other markets there was no sense of panic. EUR/GBP closed the session at 0.8061compared to 0.8102 on Friday evening.

Last night the BRC shop prices and the RICS house price balance were both reported below market expectations. These indicators are not the most important ones, but they make the decision making process at this week’s BoE meeting even more complicated. At least for now, the data left no traces at all on the EUR/GBP charts. So, the pattern of sterling ignoring bad news was confirmed.

Today’s eco calendar for the UK calendar is empty. So, one can expect global sentiment on the single currency to be again the key driver for EUR/GBP trading. From a technical point of view, there is no indication of any trend reversal at all. Over the previous weeks, the EUR/GBP cross rate dropped below key support levels at 0.8222 and 0.8142. If the break below the 0.8068 would be confirmed, the way is open to the 0.77 area. (October 2008 lows). For now, we don’t row against the tide and keep our EUR/GBP short position.

However, as we have the impression that the market is very much positioned long sterling, we put in place stop-loss protection on EUR/GBP shorts to shield our position from the outside risk of further policy stimulation at this week’s BoE meeting or for a market repositioning for whatever reason. EUR/GBP regaining the MTMA (13 d, currently at 0.8138) would be a first indication that the pressure on the cross rate easing. Sustained trading above the 0.8198/8222 area would call off the downside alert.

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Originally posted here