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EUR/GBP – Time for a Breakout
Tomorrow is Super Thursday in the U.K. because we have the Bank of England monetary policy announcement, Quarterly Inflation Report and a speech from Mark Carney on tap. Independently each of these event risks could trigger big moves in sterling but together, we can be assured of a breakout in EUR/GBP. For the past week, EUR/GBP has traded in a tight 70-pip range. The downside has been limited by the 50-day SMA and the upside capped by the March high. While there may be a head and shoulders forming, a break below 0.7850 would be needed for the pattern to continue emerging. However if EUR/GBP breaks above 0.7950, the next stop should 80 cents.
Fundamentally, forecasting the outcome of tomorrow’s events is difficult to forecast because the Bank of England has to balance weaker growth with hotter inflation and Brexit risks. They’ll want to stay neutral about the pros/cons of Leave/Remain but at the same time realistic about its risks. Recent U.K. economic reports show manufacturing and service sector activity slowing, retail sales falling and wage growth decelerating. Based on these measures alone, the BoE’s February growth forecasts look too optimistic. However inflation is on the rise with oil prices up more than 45% since the February inflation report and sterling trading lower. The latest consumer and producer price reports won’t be released until after the central bank meeting but rising inflation expectations along with price pressures will prevent the central bank from talking about easing.