Is the Pound Sterling is overvalued against EUR warns Barclays Quant Analyiser? - Live Coverage on 19/11

By Will Peters

british pound exchange rates

The British pound sterling (GBP) is seeing broad-based selling pressure on Tuesday, a situation that could well extend into early December thanks to a lack of key data on offer. As technicals continue to break down we could indeed see this scenario intensify - but we question whether investors are brave enough to test GBP outside of previous ranges; today Pound Sterling Live will devote the majority of attention to identifying these levels.

 

Exchange Rates Today


  • British pound to euro exchange rate: 0.06 pct lower at 1.1922.
  • British pound to US dollar exchange rate is 0.05 pct lower at 1.6109.
  • British pound to Australian dollar exchange rate: 0.48 pct lower at 1.7099.
  • British pound to New Zealand dollar rate: 0.15 pct lower at 1.9306.

Be aware that all quotes here are taken from the wholesale spot markets; your bank will affix a discretionary spread when delivering you FX. However, an independent FX provider will guarantee to undercut your bank's offer and deliver up to 5% more currency. Please learn more here.

 

17:10: Investors await tomorrow Bank of England Minutes


"Sterling pared some gains overnight and retreated from yesterday’s three-week high against the U.S. dollar. The pound’s recent strength has been fueled by generally strong U.K. economic data and expectations that the BOE could lead other major central banks in monetary policy tightening. Investors await tomorrow’s minutes from the BOE’s early November MPC meeting for more direction." - Omer Esiner at Commonwealth FX.

 

15:29: Has the GBP/CAD rally been robbed of momentum?


canadian dollarLast week we reported that one of the most positive trades on tap was the GBP/CAD.

However, this week has seen that bullish momentum wane.

Shaun Osborne at TD Securities says:

"GBP/CAD continues to range trade below the recent (multi-year) highs. The range trade has robbed the market of positive momentum but the underlying trend remains bullish in the near-term and broader trend momentum studies are still bullishly aligned.

"We think new cycle highs would be helpful in re-establishing a stronger sense of near-term momentum here.

"The underlying trend up remains well-established from a technical point of view and a push on to the 1.72 area (our near-term target) remains a matter of time. Trend channel support at 1.6665/70 should be solid."

 

15:05: GBP/USD under pressure, better risk/reward elsewhere


camilla suttonAnother uncertain verdict on where the pound dollar rate could be headed next. Camilla Sutton at Scotiabank says:

"GBPUSD is weak, down –0.2% since yesterday’s NA close. News flow has been relatively light, lacking any domestic data. Tomorrow’s release of the BoE minutes could prove interesting for GBP but for now it is the broader USD move that is driving GBP.

"GBPUSD short‐term technicals: mixed and turning increasingly bullish—we think there is better risk reward elsewhere for near-term traders. Support lies at the 50-day MA at 1.6051, while resistance comes in at the recent high of 1.6149."

 

13:46: OECD confirms veracity of UK's economic recovery


oecd UK growth forecastGood news from the OECD today. The OECD has upgraded its UK economic forecast more than any other major economy. The OCED has upgraded its UK growth forecast this year to 1.4 pct from previous estimate of 0.6 pct. It has also upgraded next year's growth to 2.4 pct, up from 1.5 pct.

This aids the long-term view that the British pound will be likely supported by GDP growth.

However, currency markets appear to have already factored this into current Sterling prices.

 

13:32: Key consolidation levels


"FX therefore may continue to consolidate around current levels as traders seek more clarity from the eco data later this week. For now 1.3500 in EUR/USD 1.6100 in cable and .9400 in Aussie appear to be equilibrium levels and the markets may continue to trade around those barriers for the rest of the day," says Boris Schlossberg at BK Asset Management.

Remember that ahead today we hear from Ben Bernanke. Markets are expecting the dovish rhetoric that serves to point to a March taper at the US Fed to be maintained. As such, expect the US dollar to maintain a soft tone.

 

11:10: GBP-EUR forecast in 3m


More on the Barclays FX Quantitative Analyzer. Below are the 3 month spot exchange rate forecasts.

Turning this into GBP/EUR, the market is assigning a 26.2% probability that GBP/EUR will be above 1.22 in three months.

There is a 24% probability that it will be below 1.1628.

3m forecast gbp eur

 

11:00: Euro undervalued vs British pound


An interesting analysis of the pound to euro exchange rate from Barclays that suggests the GBP is overvalued, thus we read this as a suggesting a correction would be imminent.

According to the Barclays FX Quantitative Analyzer, "EUR/GBP is trading below our fair value estimate, and the deviation remains elevated."

 GBP overvalued vs EUR

10:52: GBP unlikely to stray away from 'neutral' levels


Lloyds Bank Research back the theme that forex market participants are unlikely to chance any big moves out of recent ranges.

Where are the key levels? Lloyds say:  

"GBP/USD continues to hover around 1.61 but GBP fell back against a stronger EUR and stronger risk positive currencies yesterday. In part this relates to a couple of soft UK data points, with the RICS house price data following on from the weaker retail sales data last week, but we still see no real reason to doubt the strength of the UK recovery at this stage.

"Even so, with nothing of note out of the UK today GBP seems unlikely to stray far from the neutral levels of 1.61 in GBP/USD and 0.84 in EUR/GBP. There is probably more potential for a move in GBP/USD given tonight’s Bernanke speech, with the 0.8330 (=1.20 GBP/EUR) level seemingly a bridge too far at this stage without some new evidence of EUR weakness or UK strength."

 

10:01: Why is the GBP lower against the Aussie dollar?


aussie dollarThe Australian dollar has headed in the complete opposite direction to where the RBA were hoping it would go following the release of the minutes of November's policy meeting.

Indeed, the outlook actually now favours the AUD. See our just-released report on the matter.

 

08:53: UBS neutral on GBP/USD, bearish on EUR/GBP


image 1Technical forecasts from UBS analyst Gareth Berry:

GBP/USD, Neutral: "Initial support is at 1.6037, a break below this level would extend the weakness to 1.5967. Resistance is at 1.6149 ahead of the critical 1.6260."

EUR/GBP, Bearish: "Focus on the momentum tools as a closing cross lower would reinforce the bearish theme, opening the doors to the critical support area at 0.8301 and 0.8285. Resistance is at 0.8416."

 

08:35: Euro to Pound exchange rate bullishly aligned


The short-term technical charts favour the British pound (GBP) over the Euro say Easy Forex.

A technical analysis from the broker shows a preference for long positions on the euro sterling above 0.8355 with targets viewed at 0.8415 and then 0.8445 in extension.

Keep an eye on short term support at 0.8355; a break below opens up 0.8335 and 0.8315.

 

08:28: More Euro strength in the outlook


image 2The Eurozone economy may still look fragile, but global money is betting on a strong future recovery.

UniCredit analyst Dr. Vasileios Gkionakis, Global Head of FX Strategy, tells us why we should expect further EUR strength:

"We find that EUR reserve accumulation (as a percentage of allocated reserves) fell notably in the years that the perception of sovereign risk in the periphery of Europe worsened.

"However, we think that as these risk premiums continue to normalise and re-price lower, reserve managers are likely to start increasing their demand for euros again, something that should provide meaningful support to the EUR exchange rate in the medium term."

 

08:15: Outlook for pound sterling (GBP) exchange rates turns sour


There are no major data events left for the remainder of November - what we do have are some second-tier events that could impact intra-day trading in the pound exchange rates. In this environment we see the UK currency prone to external drivers such as Euro strength, commodity currency strength and plays around the US dollar and tapering expectations.

Technical support and resistance levels will also be key as traders will most likely be too shy to trade the GBP outside of well-treaded zones.