Yesterday the price swings in the EUR/GBP cross rate basically followed the price pattern of the EUR/USD headline pair. UK Rightmove house prices were below consensus but had hardly any impact on sterling trading. The pair filled offers in the 0.7870 area early in the session as markets reacted to headlines from the article on ECB bond buying in Der Spiegel. However, last week’s highs remained out of reach. In line with EUR/USD, the pair faced a setback around noon, setting an intraday low at 0.7833. However, a broader rebound of the euro later in the session helped EUR/GBP erase the earlier losses. The pair closed the session unchanged from Friday at 0.7859.
There has been some rhetoric recently about creative plans by the BoE to inject some stimulus into the housing market and just this weekend an ex-member of the BoE speaking publically endorsed using QE for education and jobs development. At the least the BoE with their new lending program and these new creative ideas are showing some originality and plans to actually help the ailing economy. With the Olympics and the Queens Jubilee behind, no one knows for sure the effects these events have had on the economy especially retail sales and employment.
Today, the UK July public sector borrowing data will be released and the CBI August total orders trends will be published. We expect these data to be only of intraday importance for sterling trading, at best. Another set of poor public finance data might be slightly negative for sterling intraday, but this data series won’t change the global picture for EUR/GBP trading. More sideways trading might be on the cards for now.
Technically speaking the EUR/GBP cross rate reached a correction low at 0.7755 at the end last month on global euro weakness. The comments/commitment from ECB’s Draghi to do whatever is needed to protect the single currency also provided a solid support for the EUR/GBP pair. The run to the key 0.77 LT support area (October 2010 low) was aborted and the pair reached a corrective top at 0.7963 mid August. As was the case for EUR/USD, trading visibility on the ECB/EU strategy to address the crisis was also not concrete enough to support a sustained rebound of the euro against the sterling. EUR/GBP settled also in a tight sideways range in the 0.7800 big figure.
Of late, the (poor) UK eco data and or the BoE policy approach had had only a very limited impact on EUR/GBP trading. The price action on the EUR/GBP cross rate is mostly driven by the euro side of the story and by global market sentiment. As is the case for EUR/USD, EUR/GBP is confined to a sideways consolidation pattern. We don’t anticipate a break of the 0.7755/0.7963 trading range and continue to play this range.