We have an ECB meeting coming up this week. The market expects the ECB to cut the APP in half and let it run until September next year though Sep 2018 has not been communicated as the end date for QE (this is what caused strength in the Euro at the last meeting). The purpose of the APP is to weaken the Euro, buying half the amount of bonds per month means a less weak Euro which is the same as saying a stronger Euro. You might say the politics in Germany would be a case for further downside and you might be right though you have to agree that less QE is a form of tightening and that if yields go higher (a result of buying less bonds) the currency will strengthen. Politics causes waves, monetary policy is the ocean so what we need a steady course, the correct instruments and good timing. Do we think that as we head into a key meeting by the central bank for the European Union, markets are going to avoid buying the Euro, which is fundamentally going to appreciate, because they are concerned about some political risk in Germany?
We also have a BOE meeting coming up this week just before the ECB. I don’t expect a hike though I am paying attention to how the MPC responds to developments in the behavior of households and businesses and the outlook for inflation since their last meeting. The BOE is on a tightening path so as far as monetary policy is concerned so there is good reason to be bullish fundamentally. With the first round of Brexit negotiations out of the way, that has should remove some of the uncertainty in the market which has reflected in recent Pound strength. I am also paying attention to the 7/2 vote split from the previous meeting to see if any previous doves have moved over into the hawk camp or visa versa – the market will be paying attention to this.
Due to these fundamentals I expect sideways trade in EURGBP as we head into the end of the year and see it as a good idea to take profit at key levels of support or resistance depending on whether you are buying or selling.
Predicted Weekly Pivot Points
Note. Pivot points are just projections and may differ at market open. Calculated using high, low and close of the previous week as per FXBootcamp Guide to Strategic and Tactical Forex pg. 668