After a blistering morning session, North American markets calmed themselves Thursday afternoon and began repairing some of the damage done. Equities found their lows after PMI data hit the wires, then meandered higher throughout the day; the USD had a banner day against the EUR and GBP; Gold kept trying to break through 1200; Oil tripped stops at 50.0 then set its sight on 52.0; and the CAD rightfully enjoyed strength against everything all day. The most disappointing of the bunch, though, had to be the GBP, which seemed to be taking a beating on a Services PMI report that was only mildly weaker than the previous month’s results.
Another reason the GBP may have been floundering is because the highly correlated EUR was beaten down even more. Thursday's European Central Bank meeting is putting a little pressure on the shared currency as Quantitative Easing is about to become a reality. While the relationship between the two currencies is well known due to their proximity and associations, sometimes movement in one creates undue influence on the other that can be reversed rather quickly. And that may be the case with the GBP as we get closer to the European trading session.
Not only will the ECB be making a monetary policy decision on Thursday, but the Bank of England will as well. If the ECB is known for doing something, the BoE may as well be known for doing nothing. They last changed interest rates in March 2009, going from 1.00% down to the 0.50% where they currently reside. A change on the six-year anniversary of the event isn’t likely to occur. Therefore, this event may pass without much fanfare, but it may also be a reason for the GBP to begin rallying.
Due to the lack of clear reasoning for a GBP fall Wednesday, a simple “no comment” from the BoE could be just what the doctor ordered for the GBP/USD. After falling over 100 pips on Wednesday, the GBP/USD is approaching an intriguing support level at 1.52, which not only has multiple examples of the market bouncing off it recently, but also boasts a 61.8% Fibonacci retracement and a psychological round number to boot. If all of these factors exert their influence enough, the GBP/USD may initially be attracted to it only to see it find that level and bounce off it like a trapeze artist who missed his mark.
Source: www.forex.com
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