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Euro Cross Pick 11.14.2012

David Song

Although the Bank of England (BoE) soften its outlook for growth, we saw the central bank scale back its forecast for undershooting the 2% target for inflation, and the stickiness in price growth should dampen the Monetary Policy Committee’s scope to expand its balance sheet further as the U.K. emerges from the double-dip recession. However, as the 2Q GDP report is anticipated to show a deepening economic downturn in the euro-area, the weakening outlook for the region may spark a sharp reversal in the EURGBP, and we will maintain a bearish forecast for the pair as the European Central Bank (ECB) continues to embark on its easing cycle. As the EURGBP fails to push back above the 0.8050 figure, the series of lower highs should pave the way for lower lows, and we may see the pair give back the rebound from the yearly low (0.7055) amid the deviation in the policy outlook.

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