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EUR/GBP Forecast 26/06/2013

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EUR/GBP Chart 26/06/2013
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The Euro is set for another leg lower against the Pound

As the trading for the day kicked off in Europe with the Asian session drawing near its close Mr. Draghi has hit the wires jawboning the Euro currency to new lows.

The pair has already tested levels around 0.8470 and the subsequent test proved to be unsuccessful as the rate bounced back up to 0.8495.

The GDP numbers out of the US briefly halted the Euro decline but not in this pair. The weighing fundamentals still introduce a substantial amount of uncertainty in this pair – should it be able to decisively break below 0.8470 we would consider it to be quite likely for the rate to pull back to the 0.84 figure and possibly even below.

Let’s turn the attention of binary options traders to what Mr. Draghi has communicated to the markets now. He basically clarified that an exit from the European Central Bank's extraordinary monetary policy measures remains far ahead in time. Markets seem reassured and a big stock market rally is on its way across European bourses.

The central banker was speaking to to committees in the French lower house of parliament, and he reiterated that there were still substantial downside risks to growth in the Euro Zone economy and the ECB keeps monitoring the situation very closely whilst being ready to take fresh action if needed. The president of the ECB has said that the bank’s policy stance has been accommodative in the past, it is accommodative in the present time and will stay accommodative for the foreseeable future.

Mr Draghi’s comments completely contrast from those made by FED chairman Ben Bernanke, who said the U.S. economy was expanding strongly enough for the central bank to begin slowing the pace of its bond-buying stimulus later this year.

It remains to be seen however how Mark Carney will kick off his appointment at the helm of the Bank of England. He has a chance to blend British monetary and financial policy in a way that he had no chance to do in Canada. He tried in 2009 to gain more powers for the Canadian central bank, voicing his opinion that the central bank should play a leading role as a new financial risk watchdog. His efforts were in vain as other regulators got worried by a potential power grab and the finance minister backed the existing state of affairs.

Mr. Carney immersed himself in financial crisis management quite early in his governorship of the Bank of Canada when he had to negotiate on a deal to repair Canada's money markets. Quite few were surprised when the world's central bankers selected Carney to run the Financial Stability Board, the global body charged with making sure that the lessons of the financial crisis resulted in tougher new rules for the banking industry. Carney is taking over the Bank of England just as it assumes greater powers over Britain's banking sector.

British finance minister George Osborne abolished the previous, ill designed regulatory system which failed dramatically to prevent the credit crisis. When he named Carney as Mervyn King's successor last November, he emphasized on Carney's banking expert opinion. Despite his reputation for bold thinking, Carney may struggle to introduce sweeping changes in monetary policy at this point in time. The majority takes decisions in the Bank Of England’s Monetary Policy Committee and it may prove to be a tough hurdle for its new governor.

With all these factors in mind let’s have a look at the chart. Our analysis points to a continuation of tough days for the single currency, so any rally towards the 0.8485-90 area should be met with selling puts on a 4h basis. That is to say if we see a test of the level we will be opening put positions with expiration between two and four hours looking forward. A decisive break below 0.8470 will trigger further selling pressure and we will look for a short term bounce back to the current support level to re-energize selling pressure.

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