Euro pause could become a stall
Ken Odeluga October 8, 2019 12:01 PM
Brexit mayhem and weak U.S. data offer a test of the single currency’s rebound
Right now, the indelicate art of trading sterling against a backdrop of Brexit mayhem and ambivalent economic trends is an exercise in gauging the extent to which risks are relatively priced or overpriced over the crosses. Like Brexit itself, no one would describe the methodology as scientific. Still, the euro’s steady glide lower, throughout 2019, in step with a stream of deteriorating economic counters, has brought frequent interest in contrarian bets in favour of the pound.
In more recent weeks however, the advent of Boris Johnson’s premiership, which heightened volatility anew, made bullish strategies more difficult to manage. On top of that, U.S.-Eurozone rate differentials have narrowed sharply this year, as the Federal Reserve becomes increasingly boxed in. True, spreads remain enormous: the two-year Eurozone/U.S. differential spanned -0.786% to 1.4255% at last check. But tightening of around 1% since late January is still punchy. Tapering of the Eurozone-UK 2-year spread by 0.3% and change since mid-April is less spectacular but can’t be ignored.
Aside from Brexit, these moves are another reason why sellers of dollars or pounds against the single currency in recent weeks, have seemed to be pushing hard at a door, unaware that it was open. Such instances, like EUR/GBP’s 73-odd pip run higher in Europe on Tuesday, can pose the risk of corrective setbacks. Downing Street’s unravelling Brexit negotiating strategy—and possibly unravelling poise too—has coincided with weak though better-than-expected German output stats and worryingly soft U.S. factory gate inflation. Upside euro momentum was seized on, but the test of whether it’s run too far has already begun.
The rate was last eyeing the lower side of 0.8974. That was resistance established by clear reversals between 10th and 13th September. That makes the line a pivotal check of the euro’s rebound from a floor on the 20th September. Well, the level did give way, but not sustainably, therefore the test is incomplete. RSI momentum is now tracking higher with price. Rougher trends, like the 50-hour average are also in step. Even better, the 50-HMA has provided additional support in recent sessions. In other words, conditions are ripe for the euro to capitalise more on souring Brussels-London talks, and any further retreats by Downing Street into the twilight zone. But if the single currency keeps stalling here, it will probably stall hard. In that instance, the rising trend line from September lows could be next in line top break.
EUR/GBP – Hourly [08/10/2019 16:50:17]
Source: City Index
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.