GBP Edges Lower Versus EUR Ahead Of BOE QE Increase Decision Expected Today

• EUR recovers earlier losses in Asia to push through key technical level ahead of the London opening.
• JPY and USD weaken again ahead of the European opening despite mixed performance in Asian equities overnight
• GBP edges lower versus EUR ahead of BOE QE increase decision expected today
• European equity markets open higher as EURUSD stalls above 1.3300 ahead of ECB interest rate decision later today.
• Gold trades sideways in early trade as market awaits fresh news from Greece

Good morning. Yesterday despite many attempts the EURUSD failed to break above the 1.3280-90 neckline level.

The subsequent move back to 1.3220 was helped by the dollar rallying generally as GBPUSD fell sharply, reversing all the day’s gains as it slid back underneath 1.58 having earlier reached as high as 1.5930.

GBPJPY fell back 150 pips from its earlier highs as well. That was in part due to the USDJPY running into Japanese exporter offers above 77.15.

The AUD and the CAD both weakened too as they fell back under pressure from falling equity markets and some barely reported hawkish comments from the Fed’s Williams, who is a known dove.

For those of you who don’t understand the terminology a ‘Dove’ is someone who is always erring on the side of easier monetary policy whereas a Hawk is one who is aggressively opposed to any inflationary pressures and therefore prefers to keep conditions tight. The Fed chairman is just a pessimist!

The big mover yesterday was the GBP which fell across the board ahead of today’s BOE interest rate decision.

The weakness in the pound would appear to lie with the prospect of the Bank increasing its QE program by £50 billion, from £275 billion to £325 billion.

That outcome is widely expected by most analysts and has been for some time so the fall in the currency, whilst a little surprising, probably had more to do with profit taking on long sterling positions yesterday.

There was also talk of some large fixing orders to buy EURGBP which pushed the price through resistance at 0.8350 in the morning fixings.

The price is higher this morning as EURUSD breaks above 1.3300. It has traded at 0.8400 ahead of the London opening and further gains look likely in the short term ahead of the ECB interest rate decision at 12.45pm today.

The market consensus is that they won’t change the official benchmark rate which currently stands at 1%.

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The USD and JPY are once again weaker this morning despite recovering yesterday as US equity markets fell back.

It seems that the old dynamics are still in place and the US and Japanese currencies seem to only have their best days when the world looks a bleaker place.

Unfortunately this dynamic shows little signs of changing and will only likely do so if the Fed embarks on a tighter monetary policy ahead of Europe and Japan.

In terms of Greece and what comes out of that area today, I think the markets are trying as much as possible to ignore it on a daily basis but having to because there is reaction to every headline when it hits the screens still.

It looks like the Greek politicians will do their utmost to appease the EU and try and come up with necessary additional cuts in order to ensure receipt of the EUR 130 billion this month, so that they can pay their 14 billion EUR bond maturity on March 20.

I would just ask the question, that if more cuts are to be imposed on Greece and they are already bankrupt and unable to pay their debts, then how can this plan work if it reduces further their net tax intake and strangles growth going forward?

Today sees interest rate decisions from the BOE as already mentioned and the ECB at 12pm and 12.45 pm respectively.

The market seems to have priced in the prospect of more BOE QE and whilst some see recent similar BOE moves as having not harmed the currency on previous occasions, it’s by no means certain that the pound will react positively to more of the same today. The ECB is expected to leave interest rates on hold after that at 12.45pm.

If they do surprise the markets by cutting then the EURUSD should react accordingly, but no move could open up a path to the next key level at 1.3460 now that the neckline level has been breached.

European equities are higher this morning and risk is in demand as optimism still abounds on the Greek outcome.

Despite the risk environment denting the dollar it’s the EUR that’s benefitting the most as the likes of the AUD and the CAD underperform relative to the single currency which is still benefitting from an unwind in short EURAUD and EURCAD positions.

That dynamic is also helping gold trade sideways because otherwise one would be forgiven for thinking that the metal should be higher right now. Clearly the market is long on this one now and hence headway is slow.

The next significant news will likely see a move either side on 1700-1760. The current price right in the middle of that therefore looks very pivotal now.