Market News & Analysis


Top Story

Euro pause could become a stall

Brexit mayhem and weak U.S. data offer a test of the single currency’s rebound

Right now, the indelicate art of trading sterling against a backdrop of Brexit mayhem and ambivalent economic trends is an exercise in gauging the extent to which risks are relatively priced or overpriced over the crosses. Like Brexit  itself, no one would describe the methodology as scientific. Still, the euro’s steady glide lower, throughout 2019, in step with a stream of deteriorating economic counters, has brought frequent interest in contrarian bets in favour of the pound.

In more recent weeks however, the advent of Boris Johnson’s premiership, which heightened volatility anew, made bullish strategies more difficult to manage. On top of that, U.S.-Eurozone rate differentials have narrowed sharply this year, as the Federal Reserve becomes increasingly boxed in. True, spreads remain enormous: the two-year Eurozone/U.S. differential spanned -0.786% to 1.4255% at last check. But tightening of around 1% since late January is still punchy. Tapering of the Eurozone-UK 2-year spread by 0.3% and change since mid-April is less spectacular but can’t be ignored.

Aside from Brexit, these moves are another reason why sellers of dollars or pounds against the single currency in recent weeks, have seemed to be pushing hard at a door, unaware that it was open. Such instances, like EUR/GBP’s 73-odd pip run higher in Europe on Tuesday, can pose the risk of corrective setbacks. Downing Street’s unravelling Brexit negotiating strategy—and possibly unravelling poise too—has coincided with weak though better-than-expected German output stats and worryingly soft U.S. factory gate inflation. Upside euro momentum was seized on, but the test of whether it’s run too far has already begun.

The rate was last eyeing the lower side of 0.8974. That was resistance established by clear reversals between 10th and 13th September. That makes the line a pivotal check of the euro’s rebound from a floor on the 20th September. Well, the level did give way, but not sustainably, therefore the test is incomplete. RSI momentum is now tracking higher with price. Rougher trends, like the 50-hour average are also in step. Even better, the 50-HMA has provided additional support in recent sessions. In other words, conditions are ripe for the euro to capitalise more on souring Brussels-London talks, and any further retreats by Downing Street into the twilight zone. But if the single currency keeps stalling here, it will probably stall hard. In that instance, the rising trend line from  September lows could be next in line top break.

EUR/GBP – Hourly [08/10/2019 16:50:17]

Source: City Index

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.