EUR/GBP: More Anxieties Over the Euro Zone

Weak economic data springing from Germany continued to put pressure on the Euro in the previous European trading exchanges, resulting to its loss of 30 pips versus the British pound. The want of significant comments from the European Central Bank (ECB) to back its statement that it would preserve the Euro also brings concerns anew that it would still take time before it could respond to the exigency of the situation.

In today’s European exchanges, the EUR/GBP pair is expected to decline as the precondition of the ECB before it would intervene in the bond markets raised the possibility of a debt crisis-escalation in Italy and Spain before it would make a move. Prior to its intervention in the markets, the central bank said that the initial step for troubled nations is to seek for help from the Euro Zone’s rescue funds. Lack of fresh remarks from the ECB to contain the rise in Spanish and Italian borrowing costs are likely to trigger further Euro selling. Yesterday, the central bank released its monthly bulletin where it said that downside risks to the bloc’s economic outlook remain, with tensions in the financial markets and their potential impact on the real economy posing as the primary concerns.

In other news, the Ifo Economic Climate for the Euro area declined for the first time this year, as the debt crisis pushed the region to a deeper recession. The indicator dropped to 88.9 points in the second quarter of this year, from 100.3 points in the previous quarter, the first drop since the final quarter of last year. Further, the gauge assessing the current situation dropped to 103.5 points from 114.7 points, while a measure of expectations plunged to 80.3 points from 91.3 points. Said the institute: “The economy is not expected to pick up in the next six months.” It then added that the “debt crisis has flared up again and is hampering economic activity in the Euro area.”

In the UK, prospects of more easing by the Bank of England have gone down when central bank Governor Mervyn King said that a rate cut would be counterproductive than beneficial. For the PPI Input data up for release today, July’s figure is expected to gain by 1.4 percent, after falling by 2.2 percent in the month before. This index has long remained in the negative region since April and a hike to the positive territory would be bullish for the Cable. With the foregoing factors pointing to a bearish single currency, a short position for the EUR/GBP pair is recommended in today‚Äôs European exchanges.

Article by AlgosysFx Forex Trading Solutions