Sample Category Title

Pivot (invalidation): 1.3080

Our preference Short positions below 1.3080 with targets at 1.3005 & 1.2975 in extension.

Alternative scenario Above 1.3080 look for further upside with 1.3130 & 1.3165 as targets.

Comment The RSI calls for a drop.

Pivot (invalidation): 0.9930

Our preference Short positions below 0.9930 with targets at 0.9900 & 0.9880 in extension.

Alternative scenario Above 0.9930 look for further upside with 0.9950 & 0.9975 as targets.

Comment A break below 0.9900 would trigger a drop towards 0.9880.

Pivot (invalidation): 111.10

Our preference Short positions below 111.10 with targets at 110.60 & 110.35 in extension.

Alternative scenario Above 111.10 look for further upside with 111.50 & 111.90 as targets.

Comment A break below 110.60 would trigger a drop towards 110.35.

Pivot (invalidation): 1.3170

Our preference Long positions above 1.3170 with targets at 1.3240 & 1.3265 in extension.

Alternative scenario Below 1.3170 look for further downside with 1.3135 & 1.3110 as targets.

Comment The RSI is bullish and calls for further advance.

Pivot (invalidation): 1.1710

Our preference Long positions above 1.1710 with targets at 1.1750 & 1.1770 in extension.

Alternative scenario Below 1.1710 look for further downside with 1.1685 & 1.1660 as targets.

Comment The break above 1.1710 is a positive signal that has opened a path to 1.1750.

Pivot (invalidation): 1.1610

Our preference Long positions above 1.1610 with targets at 1.1640 & 1.1655 in extension.

Alternative scenario Below 1.1610 look for further downside with 1.1600 & 1.1590 as targets.

Comment The RSI is bullish and calls for further upside.

Pivot (invalidation): 0.8875

Our preference Long positions above 0.8875 with targets at 0.8905 & 0.8920 in extension.

Alternative scenario Below 0.8875 look for further downside with 0.8860 & 0.8845 as targets.

Comment The RSI lacks downward momentum.

Pivot (invalidation): 8060

Our preference Long positions above 8060 with targets at 8330 & 8500 in extension.

Alternative scenario Below 8060 look for further downside with 7850 & 7690 as targets.

Comment The RSI calls for a rebound.

• We expect the Bank of England to hike the Bank Rate from 0.50% to 0.75%, as activity indicators have rebounded and the unemployment rate is low.
• We expect the Bank of England to hike once a year.
• We look for EUR/GBP to remain range bound near term, with Brexit uncertainty expected to remain a key source of volatility.

Bank of England outlook: hike but no new signals

As activity indicators have rebounded and the unemployment rate remains below the Bank of England's 4.25% NAIRU estimate (actually, the single-month unemployment rate is now below 4% on the second decimal place), we believe the Bank of England is set to raise the Bank Rate by 25bp to 0.75% at the upcoming meeting despite inflation being lower than expected.

While we still believe the Bank of England is too optimistic on the inflation outlook, it seems that Mark Carney and company are more concerned about overheating the economy. Despite growth on average being lower now than before the Brexit vote, it is still sufficient to absorb the remaining slack, as potential GDP growth has declined as well. Like many other central banks around the world, the Bank of England believes in the Phillips Curve and thinks underlying inflationary pressure is increasing as the labour market continues to tighten. We expect the Bank of England to hike once next year. With respect to the tone of voice, we do not expect big shifts. In our view, the Bank of England is likely to repeat that ‘ongoing tightening of monetary policy over the forecast period would be appropriate' but that rate hikes ‘are likely to be at a gradual pace and to a limited extent'.

Remember the Bank of England made a significant change to its QE guidance at its last meeting, as it said it would not consider reducing the stock of purchased bonds until the Bank Rate reaches 1.5% (previously 2.0%). This is a sign that it thinks the natural rate is low and that it does need to raise the Bank Rate many times before monetary policy is neutral.

FX outlook: EUR/GBP range for now but lower eventually

We expect EUR/GBP to trade slightly lower going into the Bank of England meeting. However, given that the market almost fully discounts a rate hike, we expect any rally in the GBP to prove short-lived. The GBP has been one of the weakest performing currencies in the G10 space over the past month, as political uncertainty related to Brexit has outweighed the growing prospect of a rate hike from the Bank of England in August. We could see a bit of a relief from the recent sell-off pressure in GBP from the political side after the UK Prime Minister yesterday relegated the Brexit department. However, overall we look for EUR/GBP to remain range bound near term, with Brexit uncertainty expected to remain a key source of volatility.

Longer term, we still expect EUR/GBP eventually to trade lower driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.8650 in 3M, 0.8400 in 6M and 0.8300 in 12M.

For the 24 hours to 23:00 GMT, the EUR rose 0.42% against the USD and closed at 1.1732, after the US President, Donald Trump and the European Union President Jean-Claude Juncker agreed to work toward ‘zero tariff’ deal, thereby easing trade tensions.

Data showed that in Germany, Europe’s largest economy, the IFO business climate index fell slightly to a level of 101.7 in July, marking its lowest level since March 2017 and less than market expectations for a drop to a level of 101.5. In the prior month, the index had recorded a reading of 101.8. Moreover, the nation’s IFO business expectations index eased to a level of 98.2 in July, compared to a revised reading of 98.5 in the previous month. Markets had envisaged the index to decline to a level of 98.3.

On the other hand, the nation’s IFO current assessment index unexpectedly rose to a level of 105.3 in July, following a revised level of 105.2 in the previous month. Market participants had anticipated the index to drop to a level of 104.9.

In the US, new home sales unexpectedly dropped by 5.3% on monthly basis to a level of 631.0K in June, defying market expectations for a rise to a level of 668.0K. In the preceding month, new home sales had registered a revised reading of 666.0K. Moreover, the MBA mortgage applications slid 0.2% on a weekly basis in the week ended 20 July, following a decline of 2.5% in the prior month.

In the Asian session, at GMT0300, the pair is trading at 1.1736, with the EUR trading slightly higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1685, and a fall through could take it to the next support level of 1.1635. The pair is expected to find its first resistance at 1.1765, and a rise through could take it to the next resistance level of 1.1795.

Moving ahead, investors will keep an eye on the European Central Bank (ECB) interest rate decision followed by President, Mario Draghi’s speech, due later in the day. Additionally, Germany’s Gfk consumer confidence index for August, slated to release in a while, will be on investors radar. Later in the day, the US initial jobless claims followed by advance goods trade balance and durable goods orders, both for June, will keep traders on their toes.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.