- EUR/GBP is currently trading at 0.8973 having travelled between 0.8957 and 0.8973.
- A not strong enough ECB easing package helped to boost the euro.
EUR/GBP has started to stabilise following a bullish pin-bar on the back of a rally in the euro as the European Central Bank had not done as much as the market had priced in. EUR/GBP is currently trading at 0.8973 having travelled between 0.8957 and 0.8973, up from the overnight lows of 0.8885.
A not strong enough ECB easing package helpd to boost the euro, but its the risk that the package was not enough to turn around the eurozone's economic prospects and that doesn't suggest a particularly positive outlook for European activity currencies tied to EZ growth. However, for now, the cross is catching a bid and the Pound is taking a breather. The ECB announced a policy package intended to revive the Eurozone economy and to bring inflation back to target.
The ECB announced the following:
- Deposit rate cut by 10 basis point to -0.5%.
- A tiering system will be introduced.
- Forward guidance on rates is no longer calendar-based but open-ended and state-dependent.
- QE will be restarted with 20bn euro per month, starting 1 November. There is no end date added to QE.
- The TLTROs will be repriced and include an incentive for banks to increase lending. Along the lines of the first two generations of TLTROs, banks which exceed the benchmark ECB loans will be charged at the deposit rate.
On the Brexit front, analysts at Rabobank explained that the decision to prorogue Parliament caused outrage and proved to be a uniting force behind an uncontainable rebellion. "The mutiny has led to a law that requires the Prime Minister to ask EU leaders for another 3-month delay to Brexit, if no deal is being reached by October 19. Making matters worse, the opposition effectively barred PM Johnson from holding a general election on October 15, yet an election before the end of the year still looks inevitable. The odds remain against a quick deal with the EU, but talks will be centred around a Northern Ireland-only solution to the backstop."
Meanwhile, from a technical perspective, EUR/GBP has been en-route to the July and current September lows at 0.8904/.8891 guarding the June 20 low at 0.8872. Analysts at Commerzbank said that this would make them medium-term bearish and target the 61.8% Fibonacci retracement of the May-to-August advance at 0.8794. "En route the 200-day moving average is to be found at 0.8842. Minor resistance above the mid-July high and the 55-day moving average at 0.9052/57 comes in at the 0.9149 current September high. Further up sits the August peak at 0.9327."
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