Eurozone Q4 GDP showed mild growth of around 0.3% Q/Q. Weak EU PMIs are putting some pressure on the EUR, while discouraging data is expected to continue from the Eurozone, which will keep ECB dovishness intact. The fact that the ECB is ready “to do more” to bring inflation back to target, means that traders will be seeking clues during the next monetary policy meeting in March. The question remains what exactly Draghi still has up his sleeve.
Yesterday, the GBP saw the biggest one day loss in 6 years on fears that the U.K. will leave the E.U. See my February 22 post “GBPUSD Update, Trading Lower on Brexit Fears”. With uncertainty in the backdrop, we expect that further pressure on the GBP will prevail in the coming months before the June 23 referendum.
Technically, the short term EURGBP price trades above the tentative downward sloping trend-line and above its short term moving average (10 period). My conclusion is that the underlying trend is up, and I remain with long positions as long as price can hold above the 0.7700 area, for initial targets within the 0.7900 – 0.8000 zones.
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Senior Currency Strategist
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