Who will be the First to Blink Between the Fed and ECB?
Both central banks are nearing the end of the hiking cycle, responding meeting by meeting to incoming data. While the US appears to have made more progress on core inflation, its overall state of the economy is grinding along rather well relatively speaking, as the services sector continues to advance and the labour market remains near historical lows.In addition, markets have been at odds with the Fed this year, underappreciating how hawkish the rate setting committee has been. Given this trend, there could be marginally more dollar upside in Q3.
EUR/USD Resistance Zone to Provide Pivot Point After Retest
EUR/USD price action has revealed a reluctance to trade above the zone between 1.1040 and 1.1100, unsuccessfully attempting to move higher and at each attempt. Price action is a fair distance away from those levels but given the long-term horizon associated with a quarterly forecast, it wouldn’t be out of the question to see another test of resistance before turning lower, towards 1.0640.
1.0640 is the June low and within the 3-monthly average true range for this pair which stands at around 400 pips. The bearish setup remains constructive below 1.1200, using a positive reward-risk ratio portrayed via the blue and red boxes.
Source: TradingView, prepared by Richard Snow
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EUR/GBP Downside in Sight as Markets Raise BoE Terminal Rate Above 6%
The June Bank of England (BoE) rate setting meeting ended in a hawkish surprise of 50-basis point hike. The likelihood of the hike had gained momentum the day before when core CPI rose for a second month in a row and headline inflation came in flat – exactly the opposite of what the Bank was looking for. Rates markets now price in a terminal rate for the Bank at over 6% which would place it well above other central bank projections for their own interest rates.
Taking a look at the monthly EUR/GBP chart, the downtrend is very much in play after a series of extended upper wicks around 0.8870 signalled the reluctance to trade higher from there. A bearish continuation from here could see the pair head towards 0.8305 – a level of support that has contained prices in 2016, 2017, 2019, 2020 and more recently in 2022 (on a monthly basis). The quarterly bearish setup is invalidated above 0.8835.
EUR/GBP Monthly Chart
Source: TradingView, prepared by Richard Snow
