Tuesday, November 18, 2014

Euro – Pound may be on the turn | Eurozone news: Germany to the rescue

While the EURGBP exchange rate spent most of yesterday battling to get comfortably above the 0.80 “nice round figure” resistance level, it did eventually achieve this. Apart from the psychological effects of  0.80, there is also the fact that price is now at or over the top of an important trend channel, going back all the way to mid-2013 and best seen on the weekly chart (above). This would have also been well up on the radar of the many market participants who trade this pair.

From the Technical Analysis point of view, the Euro – pound pair has also arrived at what could just turn out to be a long-term double bottom, seen here on the monthly chart:

There is a question mark over whether or not this represents the formation of another lower low, which would confirm the already apparent downtrend, or whether the double bottom formation will hold as the dominant driver of price action and send the rate into a new uptrend.

Eurozone news: Germany to the rescue

The ZEW institute is a private concern that conducts regular surveys on economic sentiment in the Euro zone but with the accent very much on Germany. Its reports are well respected. Yesterday’s significantly larger-than-expected ZEW figures provided the impetus for the rise in EURGBP noted above.

But in addition to apparent stabilisation in Germany, the locomotive of the Eurozone economy, is the realisation that Eurozone GDP growth has now been positive, albeit in a small way, for the past six quarters. We are grateful to our EU correspondent for pointing out recently that Eurozone GDP in absolute terms amounts to no less than one-sixth of global Gross Domestic Product. Think about that.

Against all of that apparently good news, or maybe to add to it, is the report by Reuters yesterday to the effect that Mario Draghi has said that any future asset purchases by the ECB could include Eurozone government bonds. This will amount to full-blown Quantitative Easing (QE) and will be calculated to rein-in appreciation of the Euro against its major counterparts, due to the fall in bond yields that can be expected to follow the purchases. Yields on sovereign bonds can be seen as a proxy for core interest rates.

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