Towards the end of last year and early this year, the EUR/GBP cross rate joined the broader market repositioning out of the euro. Investors were well aware that the ECB will keep monetary policy extremely loose in the foreseeable future and will continue to provide ample liquidity.
The poor eco outlook and the unresolved debt crisis caused the euro to lose its advantage over the UK currency. Finally, the downside was blocked, as the 0.8222 support held and several other key support levels are lining up (0.8142/0.8068).
On the topside, the range top in the 0.8400/22 area was tested several times, but a break didn’t occur until late February. This break improved temporary the ST picture in this cross rate. However, there were no follow-through gains and the pair returned soon in the old sideways range. For now, we don’t see a trigger for the pair to leave the 0.8222/0.8424 consolidation pattern.
Within this range, we still prefer a sell-on-upticks approach for a retest of the 0.8222 range bottom. The inability of the pair in recent days to stage a rebound, when reaching key support area, is a red alert signal for the euro, as it keeps the danger of another selling wave pertinent.
EUR/GBP continued to linger near key support levels for the fourth consecutive session, indicating that the euro has great difficulties to get back to “safer” territory. Investors currently favor sterling above the euro, due to the ongoing euro debt crisis and tensions inside EMU. EUR/GBP closed at 0.8241, virtually unchanged from Tuesday’s 0.8246. There was no important sterling linked news or economic data.
Intra-day, EUR/GBP followed more or less the EUR/USD price pattern. It rose from mid-morning onward hitting an intra-day at 0.8264 around 14h CET when the turnaround started and morning gains were erased. Overnight, EUR/GBP again tries to rally supported by some overall positive sentiment on risk, following strong Australian employment data.
Asian equities, trading cautiously at first, got more upside momentum in the past hour that may filter into early European trading. There are no sterling specific items on the calendar besides a speech of BoE Posen (Dove) late in the evening. Attention will go to the European side on the pair. How will the Italian auction fare, will there be interesting comments from ECB members, or will the US data surprise?