By FXEmpire.com
The BoE policy decision was the key factor for EUR/GBP trading. The BoE didn’t restart the printing press. This keeps sterling in the drivers’ seat against the euro, which is still suffering from political and economic uncertainty in the region. EUR/GBP came close to the 0.8000 barrier, but a clear break didn’t occur. EUR/GBP changed hands in the 0.8025 area at the start of trading in Europe.
Sentiment on the European markets was a bit less negative compared to the tensions that spooked investors on Wednesday. The sell-off of European equities slowed and the euro entered calmer waters, too. On the UK side of the story, some investors adjusted sterling long positions ahead of the BoE policy decisions. EUR/GBP filled offers in the 0.8045 area late in the morning. However, the BoE didn’t backtrack on its hint in the minutes of the April meeting. It left the amount of asset purchases unchanged. The market reaction to the announcement was very moderate. UK bond yields rose a few basis points and EUR/GBP came near the 0.8000 mark. However, a clear break didn’t occur. So, a lot of sterling positive news was apparently already discounted. EUR/GBP closed the session at 0.8012, little changed from the 0.8017 on Wednesday.
Today, the UK PPI data will be published. Markets will continue to keep an eye at the price data as they might be an indication of how much room the BoE has to restart QE in case the economy would deteriorate further. However, it would be a bit strange to expect markets to anticipate on more QE only one day after the BoE took a pause with respect to policy easing. So, we assume that any market reaction will be limited. So, overall sentiment on the euro might be a more important issue for EUR/GBP trading. With the BoE meeting out of the way, we don’t see a trigger for a sustained rebound of the euro. We keep our EUR/GBP short position.
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. This week, the pair dropped below the 0.8068 support, opening the way for return action to the 0.77 area. (October 2008 lows). The pair is heavily oversold. So, a correction is always possible. For now, we don’t row against the tide and keep our EUR/GBP short position. Short-term players might put partial stop-loss protection in place to shield the position EUR/GBP regaining the MTMA (13 d, currently at 0.8102) would be a first indication that the pressure on the cross rate is easing. Sustained trading above the 0.8198/8222 area (recent highs) would call off the downside alert.
Originally posted here
