By FXEmpire.com
On Thursday, sterling traders were in a wait-and-see mode ahead of the BoE police decision. During morning trade, EUR/GBP held a tight range around the 0.8120 pivot. The UK PMI of the services sector was better than expected as it remained stable at 53.3, easing fears that occurred after the very poor manufacturing measure published last week. However, the deviation from consensus was not that big and traders didn’t want to adjust positions ahead of the outcome of the BoE policy meeting. Governor King and Co left policy unchanged and didn’t restart the printing press yet. There is still a decent chance that the BoE will reactivate its programme in the near future if the economy would deteriorate further. Nevertheless, some investors were apparently positioned for BoE action and this triggered a reset in favor of the UK currency. EUR/GBP dropped to the 0.8080 area, even as the euro was pretty well bid due to improved sentiment on risk. Later in the session,
EUR/GBP faced another (temporary) setback as the EUR/USD headline pair declined on the comments from Bernanke before Congress. However, as was the case for EUR/USD, the downside was rather well protected even as Fitch cut the rating of Spain by three notches. EUR/GBP closed the session at 0.8090, compared to 0.8119 on Wednesday. So, the battle for the 0.8100 neckline continues.
After the close of the European markets, the focus remained on Spain.
Fitch cut the rating of Spain by three notches to BBB. Remarkably, this action had hardly any negative impact on EUR/USD. Just before the announcement of Fitch, Spanish PM Rajoy said that the country was awaiting the results of an audit to know the amount needed for the banking sector. As soon as this is available, talks with Europe will advance. This is of course a hard indication that there is extensive action behind the scenes on an EU plan to support the Spanish banking sector
Today, the UK PPI data will be published. Soft UK price data might be seen as making it easier for the BoE to restart QE in the near future. However, price data won’t be the real trigger for potential BoE action. So, the impact of the data should be limited and temporary. We assume that EUR/GBP will follow the global trend of the euro.
From a technical point of view, the EUR/GBP cross rate is showing tentative signs that the decline is slowing. Early May, the key 0.8068 support was cleared. This break opened the way for a potential return action to the 0.77 area Mid May; the pair set a correction low at 0.7950. From there, a rebound/short squeeze kicked in. Continued trading above the 0.8095 area (gap) would call off the downside alert. A first attempt to do so was rejected two weeks ago and the pair returned lower in the range, but the 0.7950 range bottom stayed intact. On Friday, the pair returned to the range top and 0.8100 areas was regained on Monday. This break improved the short-term picture in this cross rate, but there were no follow-through gains. The targets of the DB formation are seen at 0.8233 and 0.8254.
Originally posted here
