EURGBP, Daily
Cable has rallied to a fresh six-month high at 1.2917, finally breaching the high seen last Tuesday after British PM May called a snap election. The pound is presently showing an average 0.3% gain versus the G3 currencies on the day, and a 1.5% gain versus these currencies on a week-on-week basis. News that the Conservative Party showed a lead of 23 percentage points in a Ipsos MORI poll boosted the pound as it showed that the party of British PM May is set to greatly increase its majority at the June-8 election. This would, so the thinking goes, increase her flexibility when it comes to Brexit negotiations by diluting the influence of hardline Brexit MPs. This, and the fact that another election won’t be due until three years after actual Brexit in 2019, is seen by some as raising the odds for a “smoothing” transitional deal until a new trading agreement is in place (as this is likely to take longer than two years). However, there are reports that May will pledge a “triple lock” on immigration, free movement, and the European Court of Justice as a central pillar of here election manifesto, which suggests a “hard” Brexit.
Even if Hard Brexit remains very much on the cards, pound consider be one of the strongest currencies of the day since markets focused today in the ECB data and on the press conference. ECB left rates, QE unchanged, maintains easing bias – as expected. The central bank left benchmark rates unchanged at today’s council meeting and confirmed the QE schedule, to run at EUR 60 bln per month for the rest of the year.
During ECB Meeting , Mario Draghi acknowledge the improved growth outlook saying downside risks have diminished further, but at the same time he stressed that the very substantial degree of monetary accommodation is still needed and that the ECB needs to see through transient inflation developments. Additionally, he shrugged off the idea that the second round of the French presidential election would have an impact on the central bank’s assessment of the growth outlook, but admitted that there was a discussion on whether the balance of risks isn’t more balanced now. However, in the end it seems the hawks gave in and supported the official statement, maybe also because as we suspect the doves hinted that the forward guidance will be finally be tweaked in June.
Hence, ECB meeting did not have much of an impact on EURGBP, since pair lifted only up to today’s high at 0.8473. Therefore, EURGBP continues its downtrend since yesterday and therefore by 4 consecutive 4-hour down candles, it prompted SHORT position. Entry was taken at 0.8445, while resistance was set 20-Day EMA, at 0.8480, which is also the confluence of 23.6 Fibonacci level in 4-hour chart. In the 4-hour chart the pair manage to break earlier the 50-period EMA, and the lower Bollinger Bands pattern. RSI is at 43, sloping further down, suggesting further weakness for the week. Hence based on ATR indicator, Target 1 was set at 0.84100, while by using 61.8 Fibonacci level, Target 2 was set at 0.8400.
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Andria Pichidi
Market Analyst
HotForex
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