Europe Seeks Optimal 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 managed to withstand the pressure from PMI releases in the EU and the US, as well as Powell’s “neutral” comments. The Fed Chair practically repeated the theses of his last press conference without adding new signals, though he risked remarking that an October rate hike was “not guaranteed.” At the same time, divergence between Fed and ECB policy continues to support the euro.

The decline in risk appetite is pressuring the dollar, but the euro has not yet managed to capitalize on the weakness of the U.S. currency. PMI data from the U.S. and the eurozone triggered only a moderately negative reaction in equity markets, and speculators have now shifted into wait-and-see mode ahead of U.S. GDP figures.

Germany’s IFO business climate indices:

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

All indices came in below expectations, which is negative for the euro, though not critically damaging to the exchange rate. In the U.S., traders are focused on housing data and Fed officials’ remarks—no other factors are currently capable of shifting the dollar’s dynamics.

On weak German data, the euro is losing about 60 pips for now, but the balance of volumes remains in the buy zone. Still, the persistent pullbacks downward keep unnerving market participants.

The pound also failed to add momentum to the EUR/GBP cross despite generally positive UK macro statistics. UK PMI figures were viewed as weak, diluting the effect of other mildly positive data.

Reminder: the sharp fall in GBP/USD is provoking new budget scandals without real solutions, otherwise the pound would have continued its upward move calmly. Meanwhile, the Bank of England’s latest decision is seen as neutral: UK inflation remains nearly twice the target, so a rate cut this year is out of the question.

Active demand for EUR/GBP persists. After breaking resistance at 0.8730, the pair tested 0.8740 but again met selling pressure, returning to support at 0.8720. Declines are quickly bought up, and bulls are once again testing resistance at 0.8740. The next target is the 0.8760–0.8770 zone, where new trading interest is accumulating. A loss of 0.8720 support would open the way down to 0.8700–0.8680, though the probability of this scenario remains low.

So we act wisely and avoid unnecessary risks.

Profits to y’all!