EURGBP: Sterling may be all sold out
The 10-year German bund yield has moved back into positive territory (just) suggesting markets aren’t expecting any further easing by the European Central Bank when issues a policy review statement on Thursday.
But last week’s flash estimate of inflation in June showed the ECB will need to keep the peddle to the floor for many months yet.
In contrast, market pricing suggests a high probability the Bank of England Monetary Policy Committee will vote to cut the bank rate by 25 basis points on August 4 to coincide with its quarterly inflation report which will include updated economic forecasts.
There are a couple of MPC members out on the speaking circuit this week and we may get a better feel for which of “a range of possible stimulus measures” the BOE is leaning towards.
On the data front, UK retail sales numbers will be of interest on Thursday but perhaps a better guide to post-Brexit sentiment will be Markit’s special PMI survey on Friday.
Having been the weakest of the major currencies for quite some time, Sterling may now prove the strongest “hold-out” against a stronger US Dollar, for a while.
From an Elliott Wave perspective, it is tenable to interpret a completed 5-wave sequence from EURGBP’s July 2015 low of .6930 to its July 2016 high of .8625 (refer daily chart below).
Furthermore, from a classical charting stand point, there is a potential developing 3-week Head and Shoulders pattern (see daily chart) with a sustained break below Neckline support (currently situated about .8250) yielding a downside projection toward the .7880 level.
Entry: Any break of 0.8250 today/tomorrow presents a selling opportunity.
Stop: 0.8308, initially.
Target: 50% at 0.8028.
Time horizon: Allow several weeks.
EURGBP daily chart (click to expand)