Forex Market: EUR/GBP daily trading forecast

Yesterday’s trade saw EUR/GBP within the range of 0.7456-0.7578. The pair closed at 0.7473, losing 1.28% on a daily basis.

At 8:04 GMT today EUR/GBP was up 0.14% for the day to trade at 0.7482. The pair touched a daily high at 0.7490 at 7:54 GMT.

Fundamentals

Draghi-Varoufakis meeting outcome

The euro came under pressure after the European Central Bank canceled its acceptance of Greek bonds in return for funding yesterday, Reuters reported. This shifted the burden onto the Greek central bank to fund its lenders.

The decision was made public hours after Greeces new finance minister, Yanis Varoufakis, attended a meeting with the ECB President Mario Draghi.

Following the meeting, Varoufakis commented for Reuters: “The ECB is the central bank of Greece. … The ECB will do whatever it takes to support the member states in the euro zone.” He added: “We outlined to him the main objectives of this government, which is to reform Greece in a way that has never been tried before and with a determination that was always absent.” “We also stated categorically that the debt-deflationary cycle in which Greece finds itself is detrimental to all efforts to reform Greece”, as reported by Reuters.

United Kingdom

Bank of England policy decision

At 12:00 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 GBP 375 billion. 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 GBP 50 billion to the current GBP 375 billion 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.

Bank of England kept its growth forecast of 3.5% in 2014, but revised down by 0.2% its projections for 2015 and 2016 to growth of 2.9% and 2.6%, respectively. The minutes from BoEs meeting conducted in January revealed policymakers voted unanimously for the first time since July 2014 to maintain borrowing costs at the record low as two members dropped their call for higher rates, because of low inflation prospects.

According to extracts from the banks minutes of the Monetary Policy Committee Meeting held on January 7th-8th: “The fall in CPI inflation to 0.5% in December was in line with Bank staff’s expectations immediately before the data release, but 0.5 percentage points lower than expected at the time of the November Inflation Report.”

“CPI inflation was expected by Bank staff to reach a trough of around zero in March, as lower oil prices fed through to petrol prices, with a roughly even chance that it would temporarily dip below zero at some point in the first half of 2015.”

“In the view of all members, the outlook justified maintaining both the current level of Bank Rate and the stock of asset purchases financed by the issuance of central bank reserves. It was possible that the risks to CPI inflation in the medium term might have, if anything, shifted to the upside, but all members were also alert to the downside risk of current low inflation becoming entrenched. Monetary policy could and would be adjusted at the appropriate time to ensure that CPI inflation was on track to meet the 2% target in the medium term.”

“For the two members who had voted in the previous month for an increase in Bank Rate, the decision this month was finely balanced. They believed that the sharp fall in inflation to below the 2% target was probably driven largely by temporary factors and was unlikely materially to affect the behaviour of households and businesses in such a way that it became self-perpetuating. They also noted the most recent evidence that wage growth was more buoyant than they had expected. Nevertheless they noted the risk that low inflation might persist for longer than the temporary factors implied and concluded that this risk would be increased by an increase in Bank Rate at the current juncture.”

The minutes, as well as the Inflation Report released in November, hinted that borrowing costs may be raised at a later moment than anticipated. According to expectations, the central bank may introduce the first rate hike in almost six years in the spring of 2015, after parliamentary election in May.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 0.7502. In case EUR/GBP manages to breach the first resistance level at 0.7549, it will probably continue up to test 0.7624. In case the second key resistance is broken, the pair will probably attempt to advance to 0.7671.

If EUR/GBP manages to breach the first key support at 0.7427, it will probably continue to slide and test 0.7380. With this second key support broken, the movement to the downside will probably continue to 0.7305.

The mid-Pivot levels for today are as follows: M1 – 0.7343, M2 – 0.7404, M3 – 0.7465, M4 – 0.7526, M5 – 0.7587, M6 – 0.7648.

In weekly terms, the central pivot point is at 0.7477. The three key resistance levels are as follows: R1 – 0.7553, R2 – 0.7614, R3 – 0.7690. The three key support levels are: S1 – 0.7416, S2 – 0.7340, S3 – 0.7279.