Euro Remains Weak on Prospect of Extension to QE Program

Euro Remains Weak on Prospect of Extension to QE Program
December 7, 2016

 

Since the beginning of November, the EURGBP has been on a decline. The unexpected victory of Donald Trump in the US election triggered a selloff in the Eurodollar. Meanwhile, better than anticipated economic expansion coupled with impressive retail sales growth in the UK aided the Pound to strengthen against the major currencies, including the Eurodollar. The increasing possibility of a soft Brexit, wherein Britain will have unhindered access to the European market, ensured that the Pound continues to remain stronger. Whilst the outcome of the Italian referendum gave yet another chance for the market to punish the Eurodollar. The EURGBP fell from a high of 0.8420 to a low of 0.8320. We expect the EURGBP to remain on a downward spiral due to the facts provided below.

Even though the Italian referendum is in no way similar to Brexit, it is expected to keep the Euro weak due to the anticipated rise of anti-EU parties such as the Five Star Movement. Furthermore, a victory for the ‘No’ voters may mean that the UK will be in a better position to bargain, in upcoming Brexit related negotiations – the ECB may not take too tough a stand, as it might encourage more countries to look for an exit option.

The ECB is scheduled to meet tomorrow to discuss monetary policies. Market participants anticipate an extension to the existing quantitative easing program by at least 6 months beyond the March expiry. Furthermore, analysts believe that the ECB will also announce changes to the criteria based on which the bonds are selected for purchase. The anticipated stimulus package from Trump keeps the Greenback strong as the US inflationary outlook has turned more positive in recent weeks. Thus, we forecast the EURGBP pair to remain on a declining note.

The EURGBP pair is facing strong resistance at 0.8580. The MACD indicator is extending into the negative territory. Thus, we can anticipate the currency pair to test the next major resistance at 0.7960 in the weeks ahead.

EURGBP - Technical Analysis - 7th December 2016

So, a Forex trader can go short in the EURGBP pair near 0.8460 levels. For the suggested trade, the profit booking order can be placed at 0.8150, while the stop-loss order can be placed above 0.8580.

An investment in a low or below contract can be made by a binary trader to capitalize on the probable decline of the EURGBP currency pair. The investment can be made as long as the exchange rate of the EURGBP pair is 0.8450 or higher. Finally, the trader can opt for an expiry date of December 15th.

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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