(Vasilis Tsaprounis – TopFX)
The common European currency continues its upward reaction and has touch already the levels of 0.9850.
Having gained more than 300 basis points from the lows a 3 days ago , the reaction is quite intense and gives hope to those holding positions in favor of the European currency.
Yesterday’s announcement on the path of inflation in Germany strengthens the prospects for more aggressive policy from the Ecb’s point of view on future interest rate hikes.
Nevertheless, today’s announcement on the inflation pressures in the entire eurozone is expected to have more weight and to give clearer conclusions about these prospects.
The key question about the interest rate gap between Fed and Ecb continues to drive the market and any signs of a narrowing of this gap significantly strengthens the European currency.
As we have repeatedly mentioned even though the pair remains in a bearish channel the reactions are still in play and every time where the pair makes new lows the reaction follows extremely faithfully.
As yesterday, today the market is characterized by a rich calendar of macroeconomic news with the Eurozone inflathion price index and the level of unemployment expected with great interest by investors.
And then several announcements from the US side . Indicators of business and manufacturing activity as well as the course of personal consumption and income in the US economy come to fill a very rich calendar.
Although my long-term view has not changed and i remain optimistic that the exchange rate will return to higher levels, a return to levels near to 1/1 in just three days seems quite a difficult task for the European currency.
A scenario with high volatility and signs of fatigue for the latest uptrend of the euro is quite likely for the rest of the day.
Pound takes a breather after wild ride
(Kenny Fisher – MarketPulse)
British pound calm after tumultous week
The British pound has posted slight gains, after a spectacular showing on Thursday. In the European session, GBP/USD is trading at 1.1145, up 0.26%.
For anyone looking for lots of volatility, look no further. The pound has taken riders on a wild ride, with GBP/USD surging 2.1% on Thursday. On Monday, the pound traded in a stunning 500-point range, which saw GBP/USD touch a record low of 1.0359. Since then, the pound has padded on 800 points, in what has been a truly remarkable week.
The driver behind the pound’s volatility was Chancellor Kwarteng’s mini-budget, which included tax cuts and increased borrowing. The package was roundly criticized, with even the IMF and US officials panning the plan. This led to a near-crash in the UK bond market, forcing the Bank of England to take emergency measures and pledge unlimited purchases of securities. The bailout will continue for over two weeks and could cost up to 60 billion pounds. The BoE’s intervention has reassured investors and stabilized the bond market. The pound continued to swing wildly, but it has recovered almost all of the losses triggered by the mini-budget.
What happens now? The government clearly was not expecting a financial tsunami after a mini-budget, which are usually tame affairs that don’t affect the financial markets. Prime Minister Truss is under pressure to shelve or at least make changes to the mini-budget, but so far Truss is holding firm and insisting that she will stick with the plan. If she does, we can expect inflation, which is running at a 9.9% clip, to climb even higher.
- GBP/USD has support at 1.1144 and 1.1052.
- There is resistance at 1.1265 and 1.1384.