By FXEmpire.com
Last evening, sterling was quite well bid, both against the dollar and the euro. To be honest we didn’t see a good reason for this strong performance of sterling. Sentiment on risk was rather neutral. At the same time, the UK eco data didn’t provide a reason for optimism. Manufacturing production in April was well below market expectations. The NIESR May GDP estimate showed a 0.1% rise versus a 0.1% decline the previous month. Nevertheless, except for a very limited setback at the time of the publication of the manufacturing data, sterling was captured in a gradual uptrend for most of the session. EUR/GBP reached an intraday low in the 0.8012 area and closed the session at 0.8031, compared to 0.8061 on Monday evening.
In a speech, BoE’s Tucker indicated that the BoE had to find ways to ease credit conditions. However the comments had only a limited impact on EUR/GBP trading.
Today, there are no important data on the agenda in the UK. So, trading in the EUR/GBP cross rate should be driven by overall sentiment on the euro and by technical considerations. Yesterday, the pair clear returned south of the EUR/GBP 0.8100 neckline/point of reference. This suggests that ST momentum in this cross rates remains negative.
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 (October 2008 lows). 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. Last week and early this week, the pair tried several times to regain the 0.8100 area, but there were no follow-through gains. Yesterday, the pair even fell back below the 0.8100 neckline. We still prefer to sell into strength for return action lower in the range.
The pair have been trading in tandem to the EUR/USD cross.
Yesterday, the EUR/USD cross rate painted an erratic trading pattern on the charts. From a (currency) market point of few, the EUR100B bailout for the Spanish banking sector can only be considered as disappointing. Already on Monday evening, EUR/USD had dropped below the levels that were on the screens at the end of last week, before the publication of the plan. At the same time, the positive reaction on most other markets could not be sustained. EUR/USD even reached a ST correction low in the 1.2450 area early in Asian trade on Tuesday morning. That level was revisited yesterday evening.
Investors clearly consider the plan as being only a hasty political signal, trying to limit contagion of the Spanish markets in case of a negative outcome of the Greek elections. In addition, the exact details and impact of the plan are also difficult to assess. That said, after the sell-off of the euro on Monday, the lack of details of the plan should have been discounted by markets. So, EUR/USD traders had to look elsewhere ahead of the data and the key political developments that are on the agenda later this week. The flow eco data in the US and in Europe was limited and the data were too close to expectations to inspire trading.
Click here to read EUR/GBP Technical Analysis.
Originally posted here
