Forex Market: EUR/GBP daily trading forecast

Friday’s trade saw EUR/GBP within the range of 0.7148-0.7262. The pair closed at 0.7256, soaring 1.26% on a daily basis and marking the third consecutive trading day of gains. The daily rate of increase has been the sharpest one since April 30th, when the pair appreciated 1.40%. The daily high has also been the highest level since June 11th, when the cross registered a high of 0.7318.

At 13:45 GMT today EUR/GBP was gaining 1.75% for the day to trade at 0.7383. The pair overcame the upper range breakout level (R4), as it touched a daily high at 0.7422 at 13:12 GMT. It has been the highest level since May 7th, when a daily high of 0.7487 was reached. It is a possible level of resistance.

No relevant macroeconomic reports and/or events are scheduled for today.

Correlation with Major currency pairs

Taking into account the week ended on August 23rd and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

EUR/GBP to EUR/USD (0.9820, or very strong)
EUR/GBP to NZD/USD (0.8545, or very strong)
EUR/GBP to USD/CAD (0.8039, or very strong)
EUR/GBP to GBP/USD (0.4356, or moderate)
EUR/GBP to AUD/USD (-0.5793, or strong)
EUR/GBP to USD/CHF (-0.8890, or very strong)
EUR/GBP to USD/JPY (-0.9371, or very strong)

1. During the examined period EUR/GBP moved almost equally in one and the same direction with EUR/USD, NZD/USD and USD/CAD. The correlation between EUR/GBP and EUR/USD was almost perfect.

2. EUR/GBP moved strongly in the opposite direction compared to AUD/USD during the past week.

3. The correlation between EUR/GBP and GBP/USD was moderate.

4. EUR/GBP moved almost equally in the opposite direction compared to USD/CHF and USD/JPY during the period in question.

Bond Yield Spread

The yield on German 2-year government bonds went as high as -0.242% on August 21st, or the highest level since August 19th (-0.241%), after which it slid to -0.250% at the close to add 1.1 basis points (0.011 percentage point) on a daily basis. It has been the first gain in the past three trading days.

The yield on UK 2-year government bonds climbed as high as 0.564% on August 21st, or the highest level since August 19th (0.601%), after which it fell to 0.503% at the close to lose 4.1 basis points (0.041 percentage point) for the day, while marking a third straight trading day of decline.

The spread between 2-year UK and 2-year German bond yields, which reflects the flow of funds in a short term, narrowed to 0.753% on August 21st from 0.805% on August 20th. The August 21st yield spread has been the lowest one since July 7th, when the difference was 0.744%.

Meanwhile, the yield on German 10-year government bonds soared as high as 0.601% on August 21st, after which it slid to 0.572% at the close to lose 1.3 basis points (0.013 percentage point) compared to August 20th, while marking a third straight trading day of decline.

The yield on UK 10-year government bonds climbed as high as 1.750% on August 21st, after which it slipped to 1.698% at the close to lose 6.9 basis points (0.069 percentage point) on a daily basis, while marking a third consecutive day of decrease.

The spread between 10-year UK and 10-year German bond yields narrowed to 1.126% on August 21st from 1.182% on August 20th. The August 21st yield difference has been the lowest one in more than two months.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for EUR/GBP are presented as follows:

R1 – 0.7266
R2 – 0.7277
R3 (range resistance – green on the 1-hour chart) – 0.7287
R4 (range breakout – red on the 1-hour chart) – 0.7319

S1 – 0.7246
S2 – 0.7235
S3 (range support – green on the 1-hour chart) – 0.7225
S4 (range breakout – red on the 1-hour chart) – 0.7193

By using the traditional method of calculation, the weekly pivot levels for EUR/GBP are presented as follows:

Central Pivot Point – 0.7181
R1 – 0.7337
R2 – 0.7419
R3 – 0.7575

S1 – 0.7099
S2 – 0.6943
S3 – 0.6861