The European Central Bank is widely expected to lower the benchmark interest rate by another 25bp to a record-low of 1.00% later this week, and as the Governing Council attempts to put a floor on the overnight lending rate, long-term expectations for higher borrowing costs could boost the appeal of the single-currency however, as policymakers fail to meet on common ground, the lack of decisive action could weigh on the exchange rate as the region faces its worst economic downturn in over half a century.
[B]Currency Pair:[/B] EUR/GBP
[B]Chart:[/B] 60 Min Charts
[B]Short-Term Bias:[/B] Flat
[B][U]Analysis[/U][/B]
The European Central Bank is widely expected to lower the benchmark interest rate by another 25bp to a record-low of 1.00% later this week, and as the Governing Council attempts to put a floor on the overnight lending rate, long-term expectations for higher borrowing costs could boost the appeal of the single-currency however, as policymakers fail to meet on common ground, the lack of decisive action could weigh on the exchange rate as the region faces its worst economic downturn in over half a century. After reaching a low of 0.8233 on 11/28, the EUR/GBP surged to a high of 0.9805 in December as the Bank of England slashed borrowing costs at a rapid pace in an effort to soften the landing of the economy, and as BoE Governor Mervyn King is expected to hold the interest rate at the record-low, the lack of momentum to push back above 0.9480-90 (21.4% Fib) paired with expectations for further easing by the ECB should continue to lead the pair to retrace the advance from November. Over the next few hours of trading, we are likely to see the euro-pound attempt to push higher to retrace to sell-off from the previous week, and may work its way towards 0.9000 to fill-in the gap from the 120 SMA however, the pair is likely to face increased selling pressures over the week, and may break below its current range as the ECB is anticipated to adopt unconventional measures to shore up the economy as the interest falls close to zero. Be sure to check out other Technical Reports from DailyFX for additional information on the major currency pairs.
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