Forex Analysis – Trade of the Day: EUR/GBP 27th October 2014

Eurozone – M3 Money Supply

At GMT 9:00 a.m., the European Central Bank released the year-over-year M3 money supply figure that measures the changes in the total quantity of issues currency in the greater Europe. The M3 consists of all hard currency in circulation as well as the bank deposits, including in the central bank.

As the M3 money supply increases, it makes funds available for investments. However, an excess money supply can also lead to inflation and liquidity trap in the economy. Hence, the European Central Bank often adjust their interest rate policy based on the current M3 money supply situation. As a result, the quantity of the M3 can act like a leading indicator of the future direction of the economy.

In September, the Eurozone M3 money supply increased by 2.0%, and this month the forecast was set at a 2.2% increase. However, the actual M3 money supply figure suggested that it grew by 2.5% last month on a year-over-year basis.

United Kingdom – Confederation of British Industry (CBI) Realized Sales

At GMT 11:00 a.m., the Confederation of British Industry published its realized sales report, which measures the level of a diffusion index created by surveying retailers and wholesalers in the United Kingdom.

Since the retailers and wholesalers usually have the latest data regarding overall consumer spending trends in the country, market participants consider the realized sales report from CBI to be a leading indicator of the consumer buying behavior. Hence, it acts like a leading indicator of the economy as lower levels of consumer spending indicate a sluggish economic outlook.

Last month, in September, the CBI realized sales figure came out at 31, and this month the forecast was set at 29. Given that the consumer spending went up in the UK for the last several months, it was no surprise that the CBI realized sales index for this month came out at 31 as well.

Trade Recommendation for the EUR/GBP

Chart EURGBP, D1, 2014.10.27 19:17 UTC

Although the EUR/GBP has remained range bound since early July 2014, it has formed an intermediate upward sloping trend line since the first week of October. However, on October 21, the EUR/GBP closed below the trend line on the daily time frame, and subsequently broke below the support level at 0.7890.

Earlier today, as the Eurozone M3 money supply growth came out better than expected, the EUR/GBP tried to test the psychological support, which is now acting as a resistance, level at 0.7890. But, so far it has failed to close above it as it retraced around 12 points from this level in the last few hours.

In addition, the bullish realized sales data from the Confederation of British Industry has made the market participants uncertain regarding the bullish momentum of the EUR/GBP.

If the pair manages to close above 0.7890, it will certainly attract more buyers. On the other hand, if the EUR/GBP price penetrates below the 0.7850 level, the sellers will start to dominate the market. Hence, the current market situation suggests a CALL above 0.7890, and a PUT below 0.7850.

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About our Forex Analyst:  Asif Imtiaz

Asif worked as a prop trader for almost a decade, and later he managed trading operations for one of the largest foreign exchange strategy developers in Europe. Currently, he works as a trading consultant to several brokers and writes on various tech and financial topics. You can reach him at contact@asifimtiaz.com

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Asif Imtiaz

Asif worked as a prop trader for almost a decade, and later he managed trading operations for one of the largest foreign exchange strategy developers in Europe. Currently, he works as a trading consultant to several brokers and writes on various tech and financial topics. You can reach him at contact@asifimtiaz.com

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