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Currencies, EURUSD, GBPUSD: movements in currencies reflect central bank messages


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Rallies in EURUSD and GBPUSD reflect the influence of central banks, inflation and geopolitical risks.

original-size.webpSource: Bloomberg
 
 Sergio Ávila | Market analystMadrid | Publication date: Wednesday October 11, 2023 10:10

The euro has seen a rally, surpassing $1.06, moving away from its recent ten-month low of $1.0447, which has been the result of dovish messaging from central banks, particularly the Federal Reserve and the European Central Bank (ECB).

U.S. Federal Reserve officials have hinted that rising long-term Treasury yields could discourage future interest rate hikes. In Europe, ECB Vice President Luis de Guindos has signaled the expectation of a decline in inflation, but has emphasized the need for caution due to uncertainty related to oil price movements amid the situation in the East. Half.

On the other hand, Francois Villeroy de Galhau has stated that inflation should still converge towards the ECB's target, which is around 2%, by the end of 2025, despite the violence affecting the region of Israel.

The currency market, always sensitive to statements from central banks, reflects these mixed perceptions and cautious messages regarding monetary policy. Investors are watching for cues from these financial leaders as they evaluate their strategies amid global volatility.

TECHNICAL ANALYSIS: EURUSD

Scenario 1: A 30-minute candle close above 1.06198 would increase the odds of a rally targeting 1.06321 and 1.06586 in extension*.

Scenario 2: A 30-minute candle close below 1.05926 would increase the chances of a decline with a target of 1.05758 points.

original-size.webpSource: own creation (PRT Graphics on IG)

The British pound (GBP) has seen a recovery above the $1.2280 level, distancing itself from its recent near seven-month low at $1.2035. This rally has been influenced by dovish comments from top Federal Reserve officials, which have put pressure on the US dollar.

Meanwhile, the International Monetary Fund (IMF) has revised downwards its projections for the UK's Gross Domestic Product (GDP) in 2024, putting it at 0.6%, compared to a previous estimate of 1.0% . This revision reflects the perceived need for the Bank of England to maintain high interest rates as a measure to control persistently high inflation and address the continuing consequences of the energy price increases that occurred in the previous year.

This uncertain economic scenario poses significant challenges for UK monetary and economic policy. Investors are attentive to how the British authorities will handle the situation and how these decisions will affect the pound sterling in international markets. The British currency, in its recovery against the dollar, reflects the complexity of the economic and political factors at play today.

TECHNICAL ANALYSIS: GBPUSD

Scenario 2: A 30-minute candle close above 1.23157 would increase the odds of a rally targeting 1.23436 points.

Scenario 1: A 30-minute candle close below 1.22638 would increase the chances of a decline with a target of 1.22359 points.

original-size.webpSource: own creation (PRT Graphics on IG)

How to take advantage of the opportunities in this market? Example of operation.

To illustrate how to trade in the example, we are going to use EURUSD. At IG, we could operate in this market with barrier, vanilla options, Turbo24 and Multis. We are going to select the latter for the example, since it is a product listed on a regulated exchange, which allows us to adapt the leverage of our operations, with the risk restricted to the initial deposit and with unlimited profitability.

Suppose we take a short position in EURUSD, with an initial deposit of €1000. If we choose a Multi of x5, which means that you will generate the profit or loss corresponding to a deposit of 5000 euros in the index. Before the end of the trading day, the EURUSD has decreased by 3% from its closing price of the previous day, so the daily return on your Multi amounts to 3% of €5,000. At that moment, you exit the operation, so the profit is 150 euros.

Let us now imagine that, on the contrary, you have acquired a short Multi of x5, with a market that has evolved against you, so that the daily performance of your Multi would be -3%. Upon exiting the operation, you would have suffered a loss of -150 euros.

 

 

 

Other than the legal notice below, the material on this page does not contain a record of our trading prices, nor an offer of, nor a solicitation for a transaction in any financial instrument. IG will not be responsible in any case for the use that may be made of these comments or for the consequences that may arise. No representation or warranty is made regarding the accuracy or completeness of such information, so any person who decides to use it will do so at his own risk. Any study provided does not take into account specific objectives, the financial situation or the needs of a specific subject who may have received it. It has not been prepared in accordance with legal provisions designed to promote the independence of investment reporting and as such is considered a marketing communication. Although we are not specifically constrained from trading in advance of our recommendations, we do not seek to profit from them before providing them to our clients. Ask the full non-independent analysis disclaimer and our non-independent research recommendations .

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