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Market analysis: EUR/GBP driven by diverging policy expectations

By Kyle Rodda

13:46, 24 May 2024

The EURGBP is driven by the question: which cuts first, the ECB or the BOE? Currently, swaps markets (chart below) imply that it will be the ECB (blue line). As of the 24th of May, there’s an 84% chance of an ECB cut in June, with the markets baking in a strong possibility of another two before the end of 2024. Whether the ECB starts cutting in June depends on the next round of Eurozone inflation data, which is due on the 31st of May. If it shows a softer-than-expected number, the odds of a cut will likely increase. Meanwhile, signs of stickier inflation in the UK, with the latest CPI data this week coming in stronger-than-expected, are forcing the markets to push back the timing of the first BOE cut. Swaps (green line) imply that the BOE won’t cut until November and will likely be the only one this year.

(Source: Bloomberg)

Technical analysis: EURGBP

From a technical point of view, the EUR/GBP is testing a critical zone of support between (roughly) 0.8490 and 0.8505. A breakdown of that support level could be a bearish signal and herald further downside for the pair. In the short term, whether that happens or if the pair respects the level could boil down to next week’s European inflation data and whether it impacts expectations for what the ECB might do when it meets on June 6.

EUR/USD

1.08 Price
+0.670% 1D Chg, %
Long position overnight fee -0.0087%
Short position overnight fee 0.0005%
Overnight fee time 21:00 (UTC)
Spread 0.00006

USD/JPY

156.78 Price
-0.140% 1D Chg, %
Long position overnight fee 0.0110%
Short position overnight fee -0.0192%
Overnight fee time 21:00 (UTC)
Spread 0.010

AUD/USD

0.67 Price
+0.840% 1D Chg, %
Long position overnight fee -0.0065%
Short position overnight fee -0.0017%
Overnight fee time 21:00 (UTC)
Spread 0.00006

AUD/USD_zero

0.67 Price
+0.840% 1D Chg, %
Long position overnight fee -0.0065%
Short position overnight fee -0.0017%
Overnight fee time 21:00 (UTC)
Spread 0.00006

(Source: Trading View)

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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