Over the last weekend, at the Jackson Hall symposium, we heard from ECB’s head, Christine Lagarde, who reminded markets that the ECB remains on a meeting-by-meeting approach. The next significant data for the Eurozone is coming up in the form of the Flash HICP inflation readings for August, which is due out on the 31st.
The latest from the Bank of England
From the pound perspective, the Bank of England has been hiking interest rates to deal with surging UK inflation. This has resulted in a stretched pound-long position that looks vulnerable. A weak UK retail sales print on the 18th of August and a weak set of PMIs last week show a potentially struggling UK economy which has reduced the chances of the Bank of England’s 6% terminal rate.
This divergence has allowed the euro to gain against the pound in recent trade. Now we see another potential opportunity for more euro strength against the pound. This will come at 10 am on Thursday. The core reading is expected to fall to 5.3% from 5.5% prior, and the headline is expected to fall to 5.1% from 5.3% prior. If the core comes in above 5.5% and the headline comes in about 5.4%, then this will keep pressure on the ECB to increase interest rates in the September meeting and should lift the EURGBP higher.
EURGBP buy bias
If the readings for Eurozone inflation do come out on the high side, as outlined above, then it would be reasonable to expect a further euro-pound intraday buy bias. Here is a look at some of the major technical levels for the euro-pound pair. Remember, the extent of the potential moves will depend on the inflation print itself, as well as ongoing data from both the Eurozone and the UK, and how that impacts interest rate expectations for the ECB and BoE. Also, remember that the market can always surprise the way it reacts, so be careful with the use of leverage.