On Friday, the intraday trading pattern of the EUR/GBP cross rate was slightly different from what happened in the EUR/USD headline pair. The pair reached an intraday low at 0.8024 early in Europe. From there, a gradual rebound started.
We didn’t see any UK specific headlines to explain to price swings in the EUR/GBP pair. In the afternoon, the pair jumped beyond the 0.8050 mark as the ECB loosened the collateral rules to receive money at its money market operations. Contrary to what was the case in EUR/USD, EUR/GBP managed to sustain the intraday gains. However, a test of the 0.8100 pivot didn’t occur. So, the move was interesting, but it didn’t change to broader technical picture.
EUR/GBP closed the session at 0.8065, compared to 0.8043 on Thursday evening. The pair is confounding investors. There were some comments but only minor on Governor King and his stance towards monetary policy and a review of the prior BoE minutes, but nothing that the markets did not already know. Perhaps in light of the stance of the BoJ and the FOMC they were worth reviewing.
What were surprising on Friday, were the markets ignoring the downgrade of 15 of the largest financial institutions by Moody’s. Late Thursday Moody’s downgraded many of the well known financial institutions around the world the immediate reaction surprised the markets, but by Friday morning investors shrugged it off.
This morning, the euro is again struggling not to drift south and this price pattern is also visible in the EUR/GBP cross rate. BoE Miles in an FT article advocated the need for a substantial additional round of QE to kick-start the economy. The dovish view of BoE’s Miles is well-known. There are also some negative comments from the BIS on the BoE’s policy of printing money. However, these remarks are largely ignored by markets. EUR/GBP is following the global trend south of the euro.
The UK calendar is empty. So, global factors will have to do the job. For now, we assume that global euro weakness is the ‘by default’ stance on the currency market. This might still filter through into the EUR/GBP cross rate.
What we can expect this week is a lot of rhetoric from the EU Finance Ministers, coupled with the German’s making on last hoorah, as Angela Merkel’s powerbase goes down the tubes. The Spanish bailout and the Greek demands will make the top of the list. This weekend, the Greek government made their demands on the EU pubic, and it will not be swallowed easily by the German’s
The pair tried several times to regain some strength, but there were no follow-through gains yet. We still prefer to sell into strength for return action lower in the range. But trading this week could be erratic effected more by news flow, statements, comments and press then technicals or basic fundamentals. Remember EU Finance Ministers love to talk to the press and love headlines.