It’s monetary policy week in the forex space and there aren’t really two bigger events than the latest statements from the Bank of England and the European Central Bank.
Will we see a surprise from either central bank, and will it prompt traders to hold a major resistance area on EUR/GBP or push it higher to break?
Resistance to Hold on EUR/GBP After BOE & ECB?
The Bank of England and the European Central Banks will be giving their final monetary policy statements this week, making EUR/GBP one of the top pairs to watch out for volatility ahead. Pip Diddy briefly covered both events, noting that it’s likely we won’t see any policy changes from either, but given that surprises would likely spark huge volatility, traders will still closely watch both events.
With no changes expected, what traders will likely be on watch for is a few things: 1. How concerning is rising pandemic conditions and lockdowns for the BOE? 2. Does the ECB still believe that high inflation environment is still transitory? and 3. will there be hints of what the ECB will do with the PEPP program when it expires in March?
With the Omicron variant still relatively new to the scene, it’s likely we won’t see the worst of it for a while. And with cases rising quickly in the U.K., it looks like that has been priced into the British pound for now, and may be priced into the euro in the coming weeks.
Overall, this may draw in EUR/GBP bulls, especially if we generally see the same statement from both central banks that Omicron brings too much uncertainty, lowering the odds of tightening monetary policy to manage high inflation conditions. In that scenario, the pound may regain ground on the euro once again, and likely draw in technical traders who may play the divergence formation on the four hour chart above as the pair retests a major resistance area around the 0.8550 – 0.8600 level.
What do you all think? Will the BOE and/or ECB give cautious statements or are they ready to stop the easy money policies soon? Will Omicron be a big concern? Let me know in the comments section below!
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