The euro was unusually calm during the first half of the day. Germany's GfK Consumer Climate Index, a leading indicator for November, was released in the morning and came in below expectations at -30.8, compared with a forecast of -30.1 and -30.6 in the previous month. This survey measures how willing German consumers are to spend money, making it an early indicator of retail activity and economic growth. A weak reading usually puts pressure on the single currency, but this time the pair barely moved and remained in a narrow range around 1.1125. The market paid little attention to the data because its focus had long since shifted to the Fed's decision rather than German consumer sentiment. The pound, by contrast, pulled back and is trading near its weekly low.
No other significant data came out of Europe, leaving the GfK report as the day's only notable indicator. It can be viewed as confirmation of the broader picture. The Ifo survey on Monday showed a deterioration in assessments of current economic conditions, while Germany's composite PMI fell to 52.8 from 53.8 on Friday. This indicates that German consumers and businesses remain cautious. The UK has no regular economic releases today, leaving the budget as the main domestic market driver.
Several important events are coming up. The Fed will announce its decision later today. The market expects a pause, so leaving interest rates unchanged would not, in itself, change much. Attention will instead turn to Kevin Warsh's tone at the press conference. The ECB meeting follows tomorrow, with most participants also expecting a pause. Under these circumstances, the euro is likely to remain dependent on sentiment toward the US dollar.
For the pound, today's main event is the annual budget, accompanied by the Treasury's autumn forecast. Earlier, budget-related concerns appeared to be taking a back seat for the British currency, but on the day of the budget itself, they returned and increased the risks for the pair. Chancellor John Healey has limited room left before breaching his own fiscal rules. The headroom stood at £23.6 billion in the spring, but high energy costs, inflation, and rising borrowing costs have since reduced it considerably.
It is important to understand how the relationship between the budget and the pound works. When the government borrows more than expected, investors demand higher yields on UK government bonds, and the resulting uncertainty typically puts pressure on the currency. Earlier this month, the yield on 30-year government bonds rose to 6.05%, while the 10-year yield reached 5.527%. Both were multi-year highs, and budget concerns were among the main factors weighing on the pound.
If the budget is delivered smoothly, the pound will have a strong argument for a rebound. If, however, the market sees unclear figures or a lack of confidence in the plan, the pair could fall sharply. Against a strong dollar, this would be a particularly risky scenario. I therefore expect sharper-than-usual price swings on budget day and advise novice traders not to rush into positions during the first few minutes after the announcement, as the initial reaction can be misleading.
Momentum
EUR/USD
The price is currently at 1.1125, almost exactly midway between two breakout levels: 1.1136 is 11 points away, while 1.1115 is 10 points away. The morning low near 1.1114 came almost exactly at the lower level, and the pair rebounded from it, meaning that the first test did not result in a breakout.
A break below 1.1115 followed by consolidation beneath it could lead to 1.1082 and 1.1036. This remains the primary scenario, as the fundamental backdrop favors the dollar and the Fed's decision is due this evening. On the other hand, 1.1136 is the key level. A break above it could take the euro toward 1.1155 and 1.1176. Such a rebound would require dovish remarks from Warsh, and this scenario appears unlikely.
GBP/USD
The price is currently at 1.3279. The 1.3267 level lies 12 points below. If the pair falls below this level and consolidates there, it could move toward 1.3233 and 1.3209. This outcome is entirely plausible if the budget triggers nervousness in the bond market. The morning low was around 1.3271, just four pips above the level, and the pair rebounded from it.
The upward reference level is 1.3299, located 20 pips above the current price. A break above it could lead to 1.3330 and 1.3361. This scenario requires a smoothly received budget announcement, so it remains an alternative rather than the primary outlook, although it cannot be ruled out.
Mean Reversion
EUR/USD
The upper reference level at 1.1141 is just five pips above the breakout level at 1.1136, so caution is required. Five points can amount to little more than market noise. If the price breaks above 1.1136, reaches 1.1141, and consolidates firmly above it, this constitutes a breakout, and selling should be avoided. If, however, the price briefly moves above the level, fails to hold there, and quickly returns below 1.1136, this signals a failed breakout and a potential reversal. In that case, selling opportunities can be considered, with a stop-loss above the highest point of the failed attempt.
The lower reference level at 1.1111 is four points below the breakout level at 1.1115, and the same principle applies in reverse. If the price falls below 1.1111 and holds there, this constitutes a downward breakout, and buying should be avoided. If the price briefly declines below the level, fails to extend the decline, and returns above 1.1115, buying opportunities can be considered, with a stop-loss below the lowest point of the failed attempt. The morning low at 1.1114 did not reach this reference level, so the setup has not yet been properly tested. The initial reaction at either zone should be ignored until the price action becomes clearer.
GBP/USD
The upper reference level at 1.3303 is four points above the breakout level at 1.3299, requiring particular caution. If the price breaks above 1.3299, reaches 1.3303, and consolidates above it, this constitutes a breakout, and selling should be avoided. If the price tests the zone but quickly returns below 1.3299, this signals a failed breakout and a potential reversal. In that case, selling opportunities can be considered, with a stop-loss above the highest point of the failed attempt.
The lower reference level at 1.3273 is six pips above the breakout level at 1.3267, and the morning low at 1.3271 was close to this area. The pair briefly declined toward the zone, rebounded, and reached 1.3295, meaning that the reversal setup has already worked once.
Today, buying opportunities can again be considered if the price briefly falls below 1.3273 and then returns above it. The stop-loss should be placed below the lowest point of the failed attempt. However, if the pair breaks below 1.3267 and remains there, no reversal has occurred; instead, a downward breakout is underway, and buying should be avoided. On budget day, stop-loss orders require particular attention, as a sharp surge in gilt yields can cause prices to move rapidly through multiple levels.
