Talking Forex Daily Wrap: EUR/GBP Feel To Lowest Level Since June

Even though EUR/GBP finished the session sharply lower amid GBP favourable M&A related flows. The pair settled little changed as the market participants positioned for the upcoming ECB governing council meeting which is due to take place later on this week. The release of the latest eurozone PMIs failed to have a meaningful impact on the price action, and going forward the pair will likely remain a by-product of the news flow regarding the widely expected announcement from the Fed regarding tapering of the QE this month.

In terms of technical levels, supports are seen at the 30-Day lower Bollinger level at 1.3187, the 200DMA line at 1.3143 and then at 1.3100. On the other hand, resistance levels are seen at 1.3298 (Aug 22nd low), 1.3322 (Aug 27th low) and then at the 10 DMA line at 1.3330.



GBP/USD
GBP outperformed its peers in Europe amid M&A related flows (Vodafone/Verizon) and also the release of better than expected UK Manufacturing PMI, which rose to its highest level since February 2011. Broad based GBP strength saw EUR/GBP fall to its lowest level since mid-June and more importantly below the key 200 DMA line at 0.8480 and the 1m EUR/GBP implied rose to its highest level since late July. Ahead of the looming MPC policy meeting, David Smith, the Economics Editor of the Sunday Times, wrote that economists that make up the shadow monetary policy committee (MPC) have attacked the Bank of England’s low interest rates and forward guidance policy, claiming it will fuel inflation and boom and bust. Members of the shadow MPC say forward guidance is not just based on a flawed model but has also seen money market expectations head in the opposite direction to that desired.

In terms of technical levels, supports are seen at 1.5462 (Aug 30th low), the rising channel base level at 1.5434 and then at 1.5427 (Aug 28th low). On the other hand, resistance levels are seen at 1.5638 (Aug 23rd high), 1.5718 (Aug 21st high) and then at 1.5735, which is the 30-Day upper Bollinger level.



USD/JPY
The release of better than expected macroeconomic data from China, together with reports that members of consultative panel in Japan favour sales-tax increase, supported the grind higher by USD/JPY which edged back above several technical levels to its highest since late July. Japanese Economy Minister Amari said that a majority of those in seven consultative panels favoured proceeding with the sales-tax increase, while also urging stimulus to offset the blow to consumption. He added that panel members thought the risks of not raising the tax were much larger than the risks from increasing it as planned. However some analysts have already noted that the last time Japan hiked the sales tax from 3% to 5% in 1997, consumer spending tumbled by 13% in the quarter after the higher tax went into effect, and encouraged that this time the government takes actions to offset any negative effect stemming from tax hikes.

In terms of technical levels, support levels are seen at the Tenkan-Sen line at 97.98, the Kijun-Sen line at 97.88 and then at 97.45 (Aug 29th low). On the other hand, resistance levels are seen at the key psychologically important 100.00 level, 100.45 (Jul 24/25) highs and then at 101.00.