Forex world

March 20, 2023

EUR/GBP stays pressured around mid-0.8700s

- EUR/GBP prints four-day downtrend despite recent inaction.

- Optimism surrounding UK’s output, housing market jostles with the hawkish ECB talks.

- Market’s failure to keep the week-start optimism adds strength to the pair’s sluggish moves.

- Speech from ECB’s Lagarde, key UK data and BoE Monetary Policy Meeting eyed for clear directions.

EUR/GBP holds lower ground near 0.8760, fading the last week’s bounce off a three-month low, as traders await this week’s key catalysts with mixed feelings during early Monday. Even so, the cross-currency pair remains down for the fourth consecutive day by the press time.

Market sentiment improved earlier in the day and allowed the EUR/GBP pair to remain on the bear’s radar. Among the key catalysts, news surrounding the major central banks’ coordinated efforts to fuel the market’s liquidity joined the headlines suggesting the UBS takeover of the troubled Credit Suisse to underpin the recovery in the sentiment.

Alternatively, the details of the UBS-Credit Suisse deal suggest losses for the Credit Suisse AT1 bondholders, which in turn probed the weak-start optimism and challenged the EUR/GBP pair sellers as well.

It should be noted that the recent headlines from the Financial Times (FT) suggesting even bets on the Bank of England’s (BoE) further rate hikes also probe the EUR/GBP bears. On the same line could be the hawkish calls from the European Central Bank (ECB) officials.

Previously, headlines from Reuters favored the British Pound (GBP) as it quotes the Property portal Rightmove Survey while saying, “The average price of homes coming on the market in Britain stabilized in March and activity is picking up towards more normal pre-pandemic levels after last year's "mini-budget" upheaval.”

Elsewhere, Trade body Make UK and accountants BDO said their quarterly gauge of manufacturing output rose to +21 in the first quarter from +5 - the highest balance level since early last year, when it rose to +24, reported Reuters. The news also stated that Britain's manufacturing output bounced back in the first three months of 2023, chiming with other measures of the economy that improved, but firms expect the sector to contract as inflationary pressures persist.

On the other hand, ECB President Christine Lagarde said, “The central bank hopes the Swiss-brokered rescue of Credit Suisse will restore calm in financial markets.”

On Friday, multiple European Central Bank (ECB) officials crossed wires to convince markets of the soundness of the bloc’s banks, as well as defend the ECB’s hawkish monetary policy stance. Firstly, Governing Council member Madis Muller said, “Banking uncertainty complicates communication,” while adding that the latest inflation forecasts assume more rate hikes. Following him was ECB Board member Francois Villeroy de Galhau who said that the French and European banks are 'very solid'. Furthermore, ECB policymaker Peter Kazimir said that there is a need to continue with rate hikes while Governing Council Member Gediminas Šimkus backed the hawkish bias while saying, “The terminal rate hasn't been reached yet.”

Looking forward, ECB President Lagarde is up for a speech and can entertain EUR/GBP traders. Though, major attention will be given to this week’s UK inflation data and the BoE monetary policy meeting details for clear directions.

Technical analysis

A clear downside break of convergence of the 100-DMA and a three-month-old ascending trend line, around 0.8775 by the press time, directs EUR/GBP bears towards the monthly low surrounding 0.8720 at the latest. 

ADDITIONAL IMPORTANT LEVELS



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