With an impending ECB decision that could widen the interest rate gap between the UK and the Eurozone we look to EURGBP for possible trades. Note that on a weekly scale we are at a support level that has been tested repeatedly since last year around the 0.84900 region. A rate cut by the ECB later could be the catalyst needed to finally push and stay under.
However what we are more interested in are the possibilities should the ECB opt not to take action. The combination of a strong support and a pricing in of the rate cut from mid May makes EURGBP as potentially the better trade should the ECB disappoint. Immediate objective would be to take out the highs for the consolidation from the past two weeks, then looking on to the broader range play from the months prior.
Resistance
- 0.86206 – May High
- 0.85405 – Two Week Consolidation High
- 0.85033 – Intraday Consolidation Low
Support
- 0.84837
Intraday we have initial attempts at the support getting rejected but it would be best to stay sidelined until we hear froim the ECB at 1215GMT. We would consider a straddle with shorts just under 0.84837/900 and buys above 0.85050 just before the rate announcement. Note given the overhead cost EURGBP is not for intraday trading.
