EUR forecasted to correct lower, the question is how low?

The background to today's fall can be found in today's good UK employment data and a surprise contained in today's Bank of England MPC Minutes.

Here we consider the likely direction of sterling, particularly against the euro.

"Today's news should provide better support for sterling which has been particularly weak against the euro on the assumption that Mr, Carney would maintain a very loose monetary policy. Now that impression has been corrected EUR/GBP should correct as well with the pair drifting back towards the 8600 level as the week progresses," says Boris Schlossberg at BK Asset Management.

Leander Dreyer at Jyske Bank has suggested clients sell the euro pound exchange rate in anticipation of further declines in the exchange rate:

"We recommend investors to sell at 86.80-87.50. At present, buying GBP offers a good risk reward. If investors can tolerate a stop loss of just about 2%, they can keep S/L somewhat above the trend line and even above the top at the beginning of the year."

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However, Stephen Gallo at BMO Capital Markets says he is forecasting the declines in EUR-GBP to be contained:

"FX market positioning and event-risk aside, the GBP in our opinion has shifted upwards by no more or less than it really should have: the BoE still want interest rates suppressed, and better economic data shouldn’t have the same positive impact on the GBP in terms of magnitude until the  BoE tells us rates may be too low."

On the other end of the spectrum is Shaun Osborne at TD Securities who has forecasted that sterling is likely to feel the heat through the remainder of the year:

"The bigger picture remains however, that the MPC is still likely to remain very accommodative for quite a while and could even pursue alternate stimulus measures going forward. Overall that suggests the GBP should be weighed lower in the months ahead, particularly against the USD."

Ross Walker at RBS agrees that a fundamentally accommodative MPC will underpin the EUR-GBP by containing sterling's aspirations:

"To be clear: the MPC retains a clear dovish bias – the 'policy easing' vote in July wasn't really 9-0 in the sense that several members continue to believe that 'further stimulus is warranted' (Para.28) and that the 'increase in [shorter-term] interest rates represented an unwelcome tightening in monetary conditions that, were it to persist, would risk hampering the emerging recovery.' (Para.25)." More from Walker here.

Indeed, Luc Luyet at MIG Bank says in the longer term fortune favours the euro:

"From a longer-term perspective, the underlying trend is positive. Furthermore, the break of the resistance at 0.8637 (17/04/2013 high) validates a base formation. Monitor the next resistance area between 0.8794 (12/03/2013 high) and 0.8831 (27/10/2011 high)."