Breaking News

EUR/GBP Should Expect Further Downward Movement

By ForexTime ForexJun 16, 2014 08:28AM ET
EUR/GBP Should Expect Further Downward Movement
By ForexTime   |  Jun 16, 2014 08:28AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

EUR/GBP Hourly Chart
EUR/GBP Hourly Chart

On Thursday evening, the BoE Governor Mark Carney completely surprised the financial markets by stating that the Bank of England could raise interest rates “sooner than the markets expect”. Only a few weeks before, Carney declared that the BoE were in “no hurry to raise interest rates” and this sudden hawkish transition caused the EUR/GBP to fall to its lowest value since August 2012.

Over the next few days, we witness the release of high risk economic data from both the EU and United Kingdom. Considering the complete contradiction of fundamentals these two economies find themselves currently involved in, I am looking for this pair to further extend lower in value.

On Monday, the latest EU CPI (inflation data) is released. It is no hidden secret that the EU is currently encountering low inflation and this prompted the European Central Bank to become the first major central bank to introduce negative deposit rates during their June policy meeting. Analysts are expecting EU CPI to be confirmed at an annualized 0.5% last month, confirming why the ECB acted just under a fortnight ago.

On Tuesday morning, the latest UK CPI figures are released. The BoE’s benchmark inflation target to consider an interest rate increase is 2%. Considering the strong economic performances from the UK last month, there is a chance that CPI increased from last month’s 1.8%. In May, the UK services PMI (main GDP contributor) expanded beyond expectations, with UK retail sales recording their most impressive performance in over a decade. Any CPI reading above 1.8% will provide the EURGBP with further selling pressure.

On Wednesday morning, the latest BoE minutes are released. Following Carney’s surprise admission on Thursday evening that the BoE may raise interest rates sooner than the markets expect, there is a growing amount of optimism in anticipation of the BoE minutes.

Recently, we have read about a divergence of opinion regarding when the BoE will raise interest rates. Charles Bean, a member of the BoE’s Monetary Policy Committee has openly stated that the BoE interest rates could settle at 3% around 2017. Following the news that UK unemployment fell to a 5-year low last week, this Wednesday’s BoE minutes could provide us with our strongest hint yet on when the BoE will raise rates.

Overall, Carney’s hawkish statement on Thursday evening completely took most by surprise. The GBP bulls were starting to give up with Carney’s assertions that there was no hurry to raise interest rates. Such a sudden hawkish transition from Carney had not been priced into the markets.

The complete contradiction in fundamentals for this pair is very evident. Carney’s unexpected comments actually enticed this pair to break below a 3-month downward channel on both the H4 and Daily timeframes. Despite the Oscillators indicating that this pair is oversold, the contradiction of fundamentals are leading me to expect further downward acceleration over the coming days. 0.7888 and 0.7830 are possible future support levels on the Daily timeframe.

I would just be mindful that on Thursday, the latest UK retail sales figures are released. After accelerating to a decade high last month, a collection of respectable sources are expecting UK retail sales to slow down on Thursday. This could be when this EUR/GBP’s selling momentum begins to slow down.

Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime Ltd, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

EUR/GBP Should Expect Further Downward Movement
EUR/GBP Should Expect Further Downward Movement

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Are you sure you want to delete this chart?
Write your thoughts here
Replace the attached chart with a new chart ?
Post also to:
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email