Trading ideas for currency pair: the euro/pound is trading by the upper limit of the channel. It’s likely that, after a correction, the resistance will be broken and the rate will rise by 61.8% from the break point (the fibo from the channel) to 0.7751.
For the past three weeks, the euro has strengthened significantly against the UK pound. The euro and the yen became defense mechanisms when the Asian and US stock markets were crumbling and when oil falls.
Also, aggressive UK pound sales have been caused by the publication of an inflation report for the country. The YouGov data shows that one-year expectations fell from 1.6% to 1.4%, and this might just lead to the Bank of England putting off an interest rate hike.
Last Thursday the ECB convened. The regulator left rates unchanged at 0.05%. M. Draghi informed us about the QE program at a press conference and he also lowered his GDP growth and inflation growth forecasts for the Eurozone.
Due to a slow-down in economic growth throughout developing markets and a fall in the price of oil, this year’s GDP was dropped from 1.5% to 1.4%, in 2016 – to 1.7% and in 2017 – to 1.8% with inflation down from 0.3% to 0.1%. After Draghi gave his speech, the euro/dollar fell by 140 points to 1.1086.
Due to the upcoming Bank of England meeting due on 10th September, the euro/pound cross could renew to 0.7344 after the pinbar. One member of the UK Monetary Policy Committee at their last meeting voted for a rise in interest rates. It will be interesting to see how many vote for this time. I, however, only expect one to do so.
Now to the weekly graph. The EUR/GBP has headed upwards on the back of bull divergence. Look at the channel which can be drawn from the three points. The upper limit of the channel gives us the first target if an upward correction takes place. As we see, the euro/pound already reached it. From 0.7421 the rate rebounded. 0.7389 is a horizontal resistance at the closing price.
On the graph there’s a cut-out from the GBP/USD’s daily time period. From March to May this year, this pair has undergone an analogous situation. Due to the bull divergence, the pound/dollar grew to the upper limit of the channel, rebounded, pinbarred, had a slight fall, broke the channel and grew by more than 61.8% from the channel’s range.
If the 0.7389 resistance is passed, this is exactly the behavior that we will be able see on the weekly graph in the coming time. At the same time, there are many unknown parameters and contradictions amongst the key pairs (the ECB could extend its QE program if inflation is low, it’s unclear how many MPC members will vote for an interest rate hike in England on Thursday and, indeed, whether the US Fed will put its rates up on 16-17 September).
If we leave the technical factors aside, after a break through the resistance, wait for a growth in the EURGBP to 0.7751 (161.8% from the channel).
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Forecasts which are made in the review constitute the personal view of the author. Commentaries made do not constitute trade recommendations or guidance for working on financial markets. Alpari bears no responsibility whatsoever for any possible losses (or other forms of damage), whether direct or indirect, which may occur in case of using material published in the review.
Director of Alpari's analytical department
## ojimadu position
Senior Alpari analyst
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