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EUR/GBP – Heading for New Lows?
Tomorrow the currency market will be focused like a hawk on the ECB meeting and although the consensus view is that the central bank will remain stationary, there is a small chance that it may surprise the market with a 15bp rate cut or some sort of an expansionary monetary policy intended to stimulate demand in the region. Although the latest economic data from the EZ has been relatively robust especially in Germany which almost single highhandedly continues to pull the rest of the continent forward, the bottom line is that deflationary pressures have only increased in the past month. The latest EZ PPI data showed a -0.3% month over month decline indicating that pricing power in the region is non-existent. That troubling trend may spur the ECB to action, and if it moves it could send EUR/GBP to fresh season lows as the news out of UK is quite the opposite and the market is becoming convinced that the BoE will be the first G-7 central bank to hike rates later this year. All in all, tomorrow could set up as nasty surprise for euro long and could send EUR/GBP tumbling if ECB turns dovish.
Technically, the EUR/GBP remains supported just above the 8200 level, but a break lower to 8150 could open a run towards the key 8000 figure, while only a move above 8300 would alleviate the bearish bias and move the pair to a more neutral stance.