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Euro to decline as ECB considers further easing measures

euroThe Euro dollar made use of the chance to rally against the Pound in the post Brexit scenario. From a low of 0.7600, the Euro climbed 1000 pips to hit 0.8625 on June 6th .

However, as described below, the Euro dollar is in a much more complicated situation than any other currency, including the Pound.

The Euro zone recorded an inflation rate of 0.9% in June, up 0.1% from the 0.8% inflation rate in May. The analysts had expected the inflation rate to remain flat.

According to the Nordea bank’s analyst Holder Sandte, the positive surprise will not restrain the ECB (European Central Bank) from announcing further monetary easing measures because much of the inflation rise is attributed to the energy prices, rather than increase in core prices. The analysts at Danske bank are in agreement with this point of view, even though it is against the conventional thinking (hold or raise interest rates when inflation rises and vice-versa).

Reuters

Once the Brexit fear subsides, the Pound is expected to recover. This will only push the value of the Euro down. There is also a rising concern that other countries in the Euro zone will also call for a referendum similar to the UK. Again, such a scenario will only contribute to the decline of the Euro dollar. There is also a negligible probability of reversing the Brexit decision by the UK. If that unlikely incident happens, it will trigger a huge rally in the Pound and ultimately the Euro dollar will suffer. Thus, it can be seen that all probabilities reflect a slide in the Euro dollar. So, it is better for a trader to have a bearish outlook on the EUR/GBP pair. Looking for Forex Brokers? Checkout our exclusive list of the best brokers operating in the United Kingdom.

The EURGBP currency pair is currently trading near the R1 (resistance) pivot level of 0.8620. The stochastic indicates an overbought condition. Thus, we can anticipate the Euro to decline to test the support at 0.8050.

EUR/GBP Pair: July 8th 2016

EUR/GBP Pair: July 8th 2016

Considering this, a currency trader can go short near 0.8650 levels with a stop loss above 0.8770 where the R3 resistance exists. During the decline, the trader can book partial profits near 0.8350 and then shift the stop loss to the point of entry. The rest of the short position can be closed near 0.8000 levels.

Similarly, a one touch put option contract can be purchased by a binary trader to capitalize on the probable decline of the EUR/GBP pair. A target level of about 0.8350 should be chosen for the one touch put option trade. Choosing a contract termination date in the first week of August will also support the trader’s cause.


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