Going Long on EUR/GBP Again after the Retreat to MAs
Despite the Eurozone economy’s rapid deterioration and the ECB’s more dovish posture, EUR/GBP has been positive for about two months now, since it reversed higher by the middle of September. But, a similar scenario is taking place in the UK as well, with the data showing growing economic weakness and the Bank of England returning to the sidelines. During this period, EUR/GBP has gained almost 250 pips, with the lows getting higher, presenting us with good opportunities to buy this pair, such as earlier today.
When the price has retraced lower, moving averages have acted as support v, maintaining the upward momentu. Today we saw another retrace lower but the 50 SMA (yellow) held as support and we decided to open a buy EUR/GBP signal. Recently we are seeing some positive signals form the Eurozone, although they are minimal at the moment, but they make the situation look just a tad better than in the UK.
According to the latest Ifo study, just 18.2% of enterprises reported concerns in October, down from 24.0% in September with “things are nearly back to pre-crisis levels.” Furthermore, “companies should plan now for future shortages, diversify their supply chains and increase inventory levels” . This does show that material shortages in the German industrial sector have alleviated, but there has been no encouraging improvement in terms of the worsening demand picture. Material shortages in Germany’s industrial sector have subsided, although demand circumstances remain concerning.
Remarks by ECB policymaker, Martins Kazaks
- Too soon to say that terminal rate has been reached
- Sees risk of spillover into inflation
- No clear peak of wage growth seen yet
They must play it this way in order to keep the door open for additional rate rises, or at least maintain the impression of doing so. However, with the economy on the verge of a recession, tightening policy more would be unwise at this time.
EUR/GBP Live Chart
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