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EURGBP D1 09 13 2021 1307

 

The EUR/GBP dropped on Friday to 0.8519, the lowest level in three weeks, before rebounding back above 0.8530. The area around 0.8530 is the key short-term support, with a consolidation under that area opening the doors to 0.8505.

The ECB was about as in-line with expectations as possible, as the central bank delivered a “dovish taper” that was rather pre-announced already, given that Lagarde and company had announced that the pace of asset purchases would be “front-loaded” earlier this year. At the same time, the bank announced that it sought to maintain flexibility in the rate of purchases, theoretically allowing it to expand purchases again early next year if deemed necessary. There were a couple of small adjustments to the forecasts, with the GDP estimate for this year raised to 5.0% from 4.7% and the inflation forecast raised for this year through 2023 (to 1.5% ). That last adjustment is too small to indicate any concern that current high inflation levels will prove stickier than anticipated. The meeting was essentially a punt to the December meeting, which will have to see the bank rolling out a plan for how it will wind down the emergency QE after March of next year and transfer some percentage of that to the standard asset purchase plan to avoid a cliff edge. A new German government will likely loom large as well.

The ECB probably wanted to buy a bit more time before indicating taper plans to see how the first couple of months of fall and early winter shape up before taking next steps. EU sovereign bonds rallied on the meeting. 

EURGBP W1 09 13 2021 1306

 

The weekly chart shows the euro being rejected again from above the 0.8600 area and also from the 20-week moving average. The bias still favors the downside. Below 0.8500 the bearish pressure could raise, exposing the 0.8450 zone. The area around 0.8470 is a strong barrier.

On the upside, a weekly close clearly above 0.8600 should strengthen the outlook for the euro, pointing to more gains, targeting initially levels above 0.8700.

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