Forex Market: EUR/GBP daily trading forecast

Yesterday’s trade saw EUR/GBP within the range of 0.7079-0.7171. The pair closed at 0.7145, soaring 0.79% on a daily basis, or the sharpest daily gain since July 27th, when it surged 0.86%. The daily high has also been the highest level since July 13th, when the cross registered a high of 0.7203.

At 7:33 GMT today EUR/GBP was down 0.39% for the day to trade at 0.7118. The pair overcame the range support level (S3) and is set to test the lower range breakout level (S4), as it touched a daily low at 0.7115 at 7:27 GMT.

Today the cross may be influenced by a number of macroeconomic reports as listed below.

Fundamentals

Euro area

ECB Monetary Policy Meeting Accounts

At 11:30 GMT the European Central Bank is expected to release the accounts from its latest policy meeting, held on July 16th. This document offers a fair and balanced reflection of policy deliberations, with its objective being to provide the rationale behind monetary policy decisions and let the public receive a better understanding of the ECB Governing Council’s assessment of macroeconomic conditions.

The key refinancing rate was left intact at the record low level of 0.05% in line with market expectations. The central bank also decided to lift the Emergency Liquidity Assistance to Greek banks by EUR 900 million. The rates on the marginal lending facility and the deposit facility were kept unchanged at 0.30% and -0.20%, respectively.

According to the Introductory Statement to the Press Conference offered by ECB President Mario Draghi: “Regarding non-standard monetary policy measures, the asset purchase programmes continue to proceed smoothly. As explained on previous occasions, our monthly asset purchases of €60 billion are intended to run until the end of September 2016 and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term. When carrying out its assessment, the Governing Council will follow its monetary policy strategy and concentrate on trends in inflation and the medium-term outlook for price stability.”

“Looking ahead, we expect the economic recovery to broaden further. Domestic demand should be further supported by our monetary policy measures and their favourable impact on financial conditions, as well as by the progress made with fiscal consolidation and structural reforms.”

“The downside risks surrounding the economic outlook for the euro area have generally been contained as a result of our monetary policy decisions, as well as oil price and exchange rate developments.”

“Supported by the expected economic recovery, the impact of the lower euro exchange rate and the assumption embedded in oil futures markets of somewhat higher oil prices in the years ahead, inflation rates are expected to pick up further during 2016 and 2017.”

In case the accounts were to present a hawkish economic outlook, the common currency would receive support, while a dovish outlook would usually lead to a sell-off.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.271% on August 12th, after which it closed at the same level to gain 0.004 percentage point on a daily basis. It has been the first gain in the past five trading days.

The yield on UK 2-year government bonds climbed as high as 0.627% on August 12th, after which it fell to 0.562% at the close to lose 1.3 basis points (0.013 percentage point) for the day, while marking a second consecutive trading day of decline.

The spread between 2-year UK and 2-year German bond yields, which reflects the flow of funds in a short term, shrank a second straight day on August 12th to 0.833% from 0.850% during the prior day. The August 12th yield spread has been the lowest one since August 3rd, when the difference was 0.817%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.641% on August 12th, after which it slid to 0.612% at the close to lose 1.7 basis points (0.017 percentage point) compared to August 11th, while marking a second straight day of decrease.

The yield on UK 10-year government bonds climbed as high as 1.830% on August 12th, after which it slipped to 1.802% at the close to lose 2.2 basis points (0.022 percentage point) on a daily basis, while marking a second straight day of decrease.

The spread between 10-year UK and 10-year German bond yields narrowed a second day in a row on August 12th to reach 1.190% from 1.195% during the prior day. The August 12th yield difference has been the lowest one since August 7th, when the spread was 1.190%.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for EUR/GBP are presented as follows:

R1 – 0.7153
R2 – 0.7162
R3 (range resistance – green on the 30-minute chart) – 0.7170
R4 (range breakout – red on the 30-minute chart) – 0.7196

S1 – 0.7137
S2 – 0.7128
S3 (range support – green on the 30-minute chart) – 0.7120
S4 (range breakout – red on the 30-minute chart) – 0.7094

By using the traditional method of calculation, the weekly pivot levels for EUR/GBP are presented as follows:

Central Pivot Point – 0.7041
R1 – 0.7134
R2 – 0.7190
R3 – 0.7283

S1 – 0.6985
S2 – 0.6892
S3 – 0.6836