Europe in Search of Balance

EUR/GBP

Key zone: 0.8700 - 0.8750

Buy: 0.8760(on strong positive fundamentals); target 0.8900-0.8950; StopLoss 0.8700

Sell: 0.8700 (after a retest of 0.8750) ; target 0.8550-0.8500; StopLoss 0.8760

European currencies absorbed the negative impact from slowing PMI indices in both the EU and the U.S., as well as Powell’s comments, with almost no losses. Powell tried to remain neutral, essentially repeating the talking points from his press conference after the rate cut. Still, the divergence between Fed and ECB policy supports the euro.

Risk appetite continues to pressure the dollar, yet the euro failed to take full advantage of its weakness.

PMI data in the U.S. and eurozone triggered only a mildly negative stock market reaction; speculators are clearly waiting for U.S. GDP figures.

IFO Business Climate Index in Germany:

• September – 87.7 vs. 89.3 forecast and 89.0 in the previous period;
• Current Assessment – 85.7, forecast 86.5, previous 86.4;
• Expectations – 89.7 (forecast 92.0) vs. 91.6 previously.

All indicators came in below forecasts – bad news for the euro, though not disastrous. In the U.S., traders are awaiting housing data and monitoring Fed officials’ remarks. At the moment, no other factors are influencing the dollar’s trajectory.

The euro currently sees little reason for aggressive moves, though it lost nearly 60 points on German data. Still, the balance of volumes remains tilted toward buying, even as prices keep sliding back down, testing traders’ nerves.

The pound also failed to inject momentum into the main European cross, despite notable British macro headlines. While much of the U.K.’s economic data looked positive, PMI readings were perceived as weak and dampened the overall outlook.

Recall: the sharp drop in GBP/USD is stirring new budget scandals without any concrete solutions. Otherwise, the pound would have calmly continued its upward trend. The BOE’s latest decision is seen as neutral: with U.K. inflation nearly twice the target, no one expects a rate cut this year.

After breaking resistance around 0.8730 against the pound, the euro tested 0.8740 but quickly came under renewed pressure, retreating back to 0.8720 support. Still, dips are being bought, and bulls are once again testing 0.8740 resistance.

Demand for EUR/GBP remains strong. Next, speculators could push for a test of 0.8760–0.8770, where new trading interest is accumulating. A loss of 0.8720 support would risk a drop toward 0.8700–0.8680, though that scenario looks unlikely for now.

So we act wisely and avoid unnecessary risks.

Profits to y’all!