Employment data last week has given Sterling a boost, with demand kicking is as unemployment hits a seven year low and wage growth momentum continues to strengthen. Inflation in the UK has proven to be a sticking point with the BOE recently revising their forecast that inflation would pick up into year end, now anticipating that inflation will remain below 1% until spring 2016. However, the diminishing capacity in the UK economy and the continued wage growth suggests that inflation will indeed rebound quickly in energy prices can sustain a rebound from current levels.
The Euro has come under selling pressure recently as speculation grows ahead of the upcoming October ECB meeting that the Central Bank will announce further measures, with ECB’s Nowotny just last week commenting that further measures were needed to boost inflation. Whilst the ECB may refrain from announcing additional measures at this meeting it is reasonable at the very least to expect a continuation of the Dovish rhetoric we’ve heard from various ECB members recently.
Trade Idea – Update
EURGBP came up against an important resistance level last week as price challenged the May 8th Double top level at .7475 against the 50% retracement from the late 2014 sell-off, only to reverse and close with a weekly key reversal candle. Technically there is indication that price may be forming a medium term base here with the potential for a break to the upside but in the near term (week ahead) the failure at this pivotal level suggests scope for a pullback as we rotate lower having drifted up into the range highs.
Daily Order Flow is bearish and price has broken below VWAP whilst on the H4 charts we can see price is currently stalled against the rising trend line from lows. A confirmed break below the trend line paves the way for a move lower into an initial test of the .72 level support.
Sell a confirmed break below .7330 targeting a test of .72 initially with a stop at .7450 – 19/10/2015
Monitoring price action into .7080/40 to close on any reversal patterns – 04/11/2015
Close position at .7010, weak UK retail sales ad loss of momentum signal potential bounce. Will monitor to reset shorts. Exit + 300 pips – 19/11/2015