EUR/GBP is a strong candidate for seeing some action soon with the latest monetary policy statement from the European Central Bank right around the corner.
What are the expectations for the ECB and what kind of setups may appear if volatility picks up?
EUR/GBP Volatility Ahead?
The European Central Bank is set to give their latest monetary policy statement tomorrow, and expectations are that they will not change their pace of stimulus. The ECB still remains highly uncertain that the recent rise in inflation, improving pandemic numbers and rising business/consumer sentiment is sustainable, so it makes sense to them to stay highly accommodative.
They will update their quarterly projections for inflation and growth at this meeting, and analysts think these numbers will be upgraded. Any deviation from that expectations could spark a pop in volatility for euro pairs, including EUR/GBP, which has several levels to check out for potential short-term or swing opportunities.
If we do get a surprise from the ECB tomorrow, odds are pretty good that the recent consolidation in EUR/GBP would break, making a “straddle play” an entry strategy to consider for potential quick pips on the event.
But unless we really get a big surprise (i.e., confirmation of tapering or an increase in stimulus measures), then the pop in volatility and momentum moves may be limited.
In that scenario, playing the current range on EUR/GBP makes sense, especially the top of the range as the trend is lower on the higher timeframes. The area between the falling ‘lows’ pattern up to the major psychological level of 0.8700 a strong watch area for a potential short play if bearish reversal candles appear, a signal that both fundamental and technical sellers may be taking control.
Bullish support candles around the bottom of the range just under the 0.8600 handle is something to watch for a potential short-term counter trend move, but it is a low probability that should be avoided by swing traders unless sentiment reverses big time for EUR/GBP.
What do you all think? Will we see big volatility develop for the euro tomorrow from the ECB event? Let me know in the comments section below!
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