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EURGBP Market Update

12/16/2022 11:40 AM

The European currency shows mixed dynamics of trading, consolidating near local highs from November 18 and the level of 0.8715. Investors are taking profits on long positions after the strong growth of the single currency the day before.

The quotes were supported by the decision of the European Central Bank (ECB) to raise the interest rate by 50 basis points to 2.5%, which is the highest level in the last 13 years. At the same time, the regulator signaled in favor of further tightening of monetary policy in order to return inflation to target levels. In addition, the ECB revised its growth forecasts for the region's economy upwards. At the moment, according to the results of 2022, it is expected that the Gross Domestic Product (GDP) will add 3.4% against the September estimate of 3.1%, and in 2023 it may add 0.5% instead of 0.9%. In turn, inflation for the current year is projected at 8.4%, which is slightly higher than the September estimate of 8.1%; in 2023 the indicator may show an increase of 6.3%, and of 3.4% in 2024. The President of the ECB, Christine Lagarde, during a press conference, said that the risks of rising consumer prices remain, and in the near future one should expect a more significant rise in the cost of energy and food products than previously thought. According to her, changing interest rates remains a key instrument of the department's monetary policy, and the quantitative tightening program will be an addition to it.

It is curious that a similar decision of the Bank of England on Thursday did not find a noticeable response among investors. The regulator raised interest rates by 50 basis points to 3.5%, the highest since 2008. The decision was not taken unanimously: 2 out of 9 board members voted to keep the value at the same level. At the same time, most officials allow further tightening of monetary policy to return inflation to the target level of 2.0%. The regulator said in a statement that the British economy is in recession, but macroeconomic indicators reflect more positive dynamics than previously projected. Experts estimate that in the fourth quarter, Gross Domestic Product (GDP) will decline by only 0.1% after adjusting by -0.5% a quarter earlier, but consumption is assessed as low, and the national real estate market remains weak.

Bollinger Bands in D1 chart show moderate growth. The price range is expanding but it fails to conform to the surge of "bullish" activity at the moment. MACD grows, preserving a stable buy signal (located above the signal line). The indicator is also trying to consolidate above the zero level. Stochastic keeps its upward direction but is approaching its highs, which reflects the risks of overbought euro in the ultra-short term.

Resistance levels: 0.8740, 0.8777, 0.8817, 0.8864. | Support levels: 0.8692, 0.8645, 0.8606, 0.8569.

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