EUR/GBP worked its way to the top of the watchlist with the latest monetary policy decision from the Bank of England likely to move Sterling in the upcoming London session, as well as a slew of European economic updates to potentially stir up euro traders.
Before moving on, ICYMI, today’s Daily U.S. Session Watchlist looked at a potential setup on EUR/USD ahead of Eurozone PMI, so be sure to check that out to see if there is still a potential play!
Intermarket Update:
| Equity Markets | Bond Yields | Commodities & Crypto |
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Fresh Market Headlines & Economic Data:
-
Dow rises nearly 100 points to close at a record amid solid earnings
Federal judge overturns national eviction ban - U.S. private payrolls post biggest gain in seven months in April
- Fed’s Evans says policy likely on hold for some time
- Economy may be stronger than Fed officials recently projected, Bowman says
- U.S. cases, vaccinations continue to drop as White House sets new inoculation goal
- ISM Services PMI at 62.7 in April vs. 63.7 in March
- Global economic growth accelerates to 11-year high as new orders and international trade rise at stronger rates
- Eurozone private sector growth continues to strengthen in April
- Recovery in German services activity halted as third wave of COVID-19 infections sees restrictions tightened
- Swiss Consumer prices increased by 0.2% in April
- Moderna says Covid booster shot generates promising immune response against variants found in South Africa, Brazil
Upcoming Potential Catalysts on the Economic Calendar
Bank of Japan Monetary Policy Meeting Minutes at 11:50 pm GMT
German Factory Orders at 6:00 am GMT (May. 6)
Euro area Construction PMI at 7:30 am GMT (May. 6)
U.K. Services at 8:30 am GMT (May. 6)
RBA Debelle speech at 9:00 am GMT (May. 6)
Euro area Retail Sales at 9:00 am GMT (May. 6)
ECB Guindos speech at 10:30 am GMT (May. 6)
Bank of England Interest Rate Decision at 11:00 9:00 am GMT (May. 6)
What to Watch: EUR/GBP
On the one hour chart above of EUR/GBP, we can see a take over by the bears over the last two sessions, breaking the tight consolidation pattern between 0.8675 – 0.8710. Well, the market is starting to slow down again, likely on traders moving back to the sidelines ahead of tomorrow’s monetary policy statement from the Bank of England.
Expectations are for the BOE to hold off on any changes to interest rates, so the catalyst for a volatility spike may come from any changes to hints of changes to quantitative easing measures and/or their economic outlook. There’s even a small possibility that they could announce a reduction of their bond purchasing program as soon as this month, which could really get Sterling hopping.
We’re looking out for that scenario as the catalysts for a potential bearish setup on EUR/GBP. Right now, the market is moving lower, and if the BOE signals tapering, we could see a bullish reaction in Sterling to send EUR/GBP even lower.
We especially like this setup if EUR/GBP bounces from current levels (around 0.8630) up to the broken strong area of interest marked above, and forms bearish reversal candles.
Alternatively, for those looking just to play a rise in volatility and break of the newly formed consolidation pattern around 0.8630, consider a straddle setup (i.e., buy orders above market/short orders below market) before the release.
This is a much riskier setup to play considering the increased potential for big slippage if the BOE really surprises the markets, so if this is an entry strategy being considered, very small position sizes/limited max risk setups are highly encouraged.
