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European Central Bank (ECB) and Bank of England (BOE) are on the path of divergent monetary policies. While ECB is continuing on its record easing of €60 billion per month looking to increase balance sheet size by €1.1 trillion, BOE is aspiring to increase interest rate at turn of the year.
Moreover, likelihood is high that ECB will extend its balance sheet further as inflation has started falling into negative once more.
In spite of this divergent fundamental, notion that BOE will have difficult time pushing hikes next year very early given the headwinds coming from emerging markets and there is considerable risk surrounding UK's EU referendum, which might push UK out of the union.
Moreover, Pound is struggling to cope up against risk aversion, which is currently ruling in the market as a whole.
Technically speaking, Euro has gained substantially against Pound, after false range break below 0.72, which turned out as range break above 0.736. There might be further rise in the short term.
Trade idea -
- Buy Euro against Pound, at current price of 0.736, with first target at 0.753 area and second at 0.776 area. Stop loss for the trade is around 0.717 area.
- For this trade risk stands at 190 pips and rewards at 170 pips and 400 pips at current price.
