EUR/GBP Holding To Ascending Triangle, Awaiting Scottish Election Results

The immediate risks surrounding the pound are now unfolding, with the Bank of England meeting yesterday and the result of the elections in the UK coming out over the next few days.

From the bank of England, there was a 50/50 chance that they would announce a taper in their asset purchases, which they did, but they have stressed that this does not mean a shift in stance, stating that it is simply a mechanical taper. This is because at their current pace they would have hit their QE limit by late August, so a taper was expected to take place at some point if they wanted to stretch purchases throughout the whole year.

In terms of forecasts, short term outlook has been upgraded, but that was of little surprise given the recent economic data we have seen coming out of the UK. The most important point to make is that the BoE forecast inflation to be below their 2% over the forecast horizon with the 3Y inflation forecast at 1.93%. A stark contrast to the inflation bulls and weighing on market rate expectations, which were pricing intwo hikes by mid-2023.

With regards to data, we have UK GDP for the first quarter out next week, but I don’t expect it to be a market mover given the recent projections from the BoE, if anything it will serve to measure if the economy is on the right track to fulfill these projections.

Looking ahead to next week, the main focus is whether Scottish National Party (SNP) can get a majority out of the elections held on Thursday. An SNP majority is negative for GBP given their objective of having another referendum on Scottish independence. And despite there being a long road to achieve that, such a result would definitely weigh on the pound going into next week.

Looking at the EURGBP daily chart, the pair is in an ascending triangle, which points to further gains in the next few sessions. That said, there is an interesting resistance within the triangle pattern, sitting just below the 0.87 mark. The 100-day simple moving average also seems to be limiting bullish momentum in this area. If we see an SNP majority I think we break that level and head towards the upper level of the triangle(0.8725), where there is likely to be strong resistance, given that this area was also key at stopping bullish momentum during the attempted rebound on the 26th of Feb. This is the key area to lookout for if EUR/GBP wants to consolidate further bullish momentum.

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