EUR/USD and GBP/USD regain some losses while EUR/GBP comes off two-year high
EUR/USD and GBP/USD regain some losses while EUR/GBP comes off two-year high as the Bank of England pledges to buy £65 billion worth of bonds to calm financial markets and avert a financial crisis.
EUR/USD bounces off lows as US dollar sees sharp decline
EUR/USD rapid sell off by over 6% from its mid-September high to levels last traded in June 2002 amid a rapidly rising US dollar on flight to quality flows is taking a breather following the Bank of England’s (BoE's) bond-buying pledge to calm financial markets and avert a financial crisis on Wednesday.
Moving away from its previous quantitative tightening policy, the BoE said on Wednesday that it was setting aside £65 billion to buy bonds until mid-October to ease pressure on pension funds and insurance companies which led to a fall in the US dollar and benefitted EUR/USD.
EUR/USD thus recovered from fresh 20-year lows at $0.9536, made slightly below key support seen between the June 2000 and January 2001 highs and the September 2002 low at $0.9698 to $0.9593, and managed to heave itself back up to $0.975 before coming off again Thursday morning. Below $0.9536 lies the September 2001 high at $0.9331. Minor resistance above $0.975 can be found between the one-month downtrend line and the 6 September low at $0.986 to $0.9865.
EUR/GBP consolidates below its two-year high
EUR/GBP’s intraday rally by some 6% to £0.9283 on Monday, close to the £0.9291 September 2020 high, on the back of the biggest tax cuts in the UK in 50 years following last Friday’s mini budget, has been followed by a consolidation period due to the BoE intervening and buying bonds.
It stated 'were dysfunction in this [government bond] market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.' The BoE went on to say 'in line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses' which calmed the EUR/GBP exchange rate.
Following the UK central bank’s intervention, EUR/GBP slid back below the minor psychological £0.9 mark and briefly traded as low as £0.8853 before consolidating around the £0.895 level. Minor resistance can now be spotted at Wednesday’s £0.9065 high and support below £0.8853 at the 19 September high at £0.8787.
GBP/USD range trades above its $1.035 all-time low
Following the UK’s aggressive fiscal stimuli mini budget on Friday, GBP/USD dropped by over 7% and slid below its 1985 low to a record low at $1.035 before regaining some of its recent losses on short covering trades amid the BoE’s £65 billion bond buying announcement on Wednesday in order to stabilise financial markets.
GBP/USD currently trades in technical no man’s land between the $1.035 record low and the minor psychological $1.1 level.
Above it minor technical resistance can only be spotted between the 7 and 16 September lows at $1.1351 to $1.1406 while immediate support can be found at Wednesday’s $1.0541 low.
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