By FXEmpire.com
On Friday, EUR/GBP performed quite a strong countertrend. Of late the decline of EUR/GBP was already less forceful compared to what happened in the headline EUR/USD cross rate. Nevertheless, euro weakness still prevailed. On Friday, the balance titled to the disadvantage of the sterling. The UK PMI of the manufacturing sector showed an unexpected sharp decline as it dropped from a downwardly revised 50.2 to 45.9. These data are not much better compared to the awful numbers that we are used to see in continental Europe. So, the report gave a blow to the safe haven ambitions of the UK currency as the risk for another round of money printing is again on the table. EUR/GBP jumped to the 0.8080 area after the report. There was some consolidation later in the session, but the rebound restarted later in the session as the euro was better bid in the wake of the poor US payrolls report. EUR/GBP closed the session at 0.8094, compared to 0.8026 on Thursday evening. However, at least for now, the 0.8102 key resistance stays intact.
Today, UK markets are closed. So trading in sterling will develop in thin market conditions. We look how the 0.8102 resistance fares. From atechnical 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 return action to the 0.77 area (October 2008 lows). Mid May, the pair set a correction low at 0.7950. From there, a rebound kicked in/short squeeze kicked in. The pair broke temporary above the MTMA, but the gains could not be sustained. 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 0.74950 range bottom stayed intact. On Friday, the pair returned to the range top. However, in a day-to-day perspective we look out whether the rebound has run its course. We look to sell into strength, but are in no hurry yet to add to EUR/GBP short exposure already at this stage.
The big event is in front of us, the BoE meeting and statement. No one is quite sure what to expect. It remains hard to imagine that the British pound can appreciate much, except perhaps over the euro, in the near-term. Earlier talk about the British pound serving as a safety currency were certainly squashed during May has it nosedived against the U.S. dollar and Japanese yen. IMF managing director Christine Lagarde thinks the risks to the UK economy are large and to the downside, concluding that BoE should implement yet another round of quantitative easing (QE). More QE should of course place even more pressure on the currency – unless the current plunge is all about pricing in an imminent increase in QE.
Click here for further EUR/GBP Forecast.
Originally posted here
