Forex Market: EUR/GBP daily trading forecast

Yesterday’s trade saw EUR/GBP within the range of 0.7962-0.7996. The pair closed at 0.7988, gaining 0.18% on a daily basis.

At 7:08 GMT today EUR/GBP was up 0.01% for the day to trade at 0.7988. The pair broke the first key weekly resistance and touched a daily high at 0.7994 at 6:15 GMT.

Fundamental view

Euro zone

At 11:45 GMT the European Central Bank (ECB) is to announce its decision in regard to borrowing costs. The median estimate by experts suggests that the central bank will probably maintain its benchmark interest rate at the record low level of 0.15% at the policy meeting today. The ECB cut borrowing costs by 0.10% at its June 5th policy meeting. Short-term interest rates are of utmost importance for the valuation of national currencies. In case the central bank is dovish about inflationary pressure in Euro zones economy and thus, either puts interest rates on hold, or reduces them, this will usually have a bearish effect on the common currency.

ECBs Governing Council aims to keep prices in the region stable, while stability is defined as a year-on-year increase in the Harmonized Index of Consumer Prices (HICP) for the Euro zone of below 2%.

The interest rate decision is to be followed by the press conference with ECB President Mario Draghi, at which he takes a statement on monetary policy. During this event volatility of euro crosses is usually high. In case Draghi offers a more hawkish tone, the euro will usually receive support, while a more dovish tone will have a bearish effect on the currency. The press conference is scheduled at 12:30 GMT.

In his speech at the Economic Symposium in Jackson Hole Mario Draghi expressed concerns over high unemployment rate in the single currency area. ”The only conclusion we can safely draw, in my view, is that we need action on both sides of the economy: aggregate demand policies have to be accompanied by national structural policies. On the demand side, monetary policy can and should play a central role, which currently means an accommodative monetary policy for an extended period of time. I am confident that the package of measures we announced in June will indeed provide the intended boost to demand, and we stand ready to adjust our policy stance further. We will launch our first Targeted Long-Term Refinancing Operation in September, which has so far garnered significant interest from banks”, Draghi said in Wyoming.

United Kingdom

At 11:00 GMT Bank of England is to announce its decision on monetary policy. The benchmark interest rate (repo rate) will probably be left unchanged at the record low level of 0.50%. The rate has been at that level since BoEs policy meeting on March 5th 2009. The repo rate applies to open market operations of the central bank with other banks, building societies, securities firms etc. Short-term interest rates are of utmost importance for the valuation of national currencies. Maintaining or reducing the repo rate usually leads to a sell-off in the national currency.

At the same time, the pace of BoE’s monetary stimulus will probably be left without change as well, at 375 billion GBP. The asset-purchasing programme, financed by the issuance of central bank reserves was started on March 5th 2009, while the scale of this programme was increased by 50 billion GBP to the current 375 billion GBP on July 5th 2012. The central bank issues new money in order to purchase gilts from private investors, such as pension funds and insurance companies. In case the scale of monetary stimulus is increased (in order to further spur economic growth), this will usually devalue the local currency.

Technical view

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.7982. In case EUR/GBP manages to breach the first resistance level at 0.8002, it will probably continue up to test 0.8016. In case the second key resistance is broken, the pair will probably attempt to advance to 0.8036.

If EUR/GBP manages to breach the first key support at 0.7968, it will probably continue to slide and test 0.7948. With this second key support broken, the movement to the downside will probably continue to 0.7934.

The mid-Pivot levels for today are as follows: M1 – 0.7941, M2 – 0.7958, M3 – 0.7975, M4 – 0.7992, M5 – 0.8009, M6 – 0.8026.

In weekly terms, the central pivot point is at 0.7937. The three key resistance levels are as follows: R1 – 0.7965, R2 – 0.8019, R3 – 0.8047. The three key support levels are: S1 – 0.7883, S2 – 0.7855, S3 – 0.7801.