British pound finds fresh form
The immediate pressure on the EUR-GBP pairing appears to be as a result of broad-based euro losses elsewhere.
Shaun Osborne at TD Securities has pointed out that the larger euro / dollar exchange rate is under pressure. We know that pressure here tends to feed into a lower euro / pound exchange rate.
"EUR-USD’s inability follow through on some of the bullish price action over the last week suggests we could see stronger test of key sessions. Below 1.3100, it could be a quick move toward 1.30," says Osborne.
Sell the euro / pound exchange rate rallies
The upward climb in EUR-GBP was arrested yesterday when the Bank of England MPC Minutes showed that further quantitative easing is now unlikely.
Piet Lammens at KBC Markets believes this will play into the hands of the British pound:
"Whatever the outcome of the report, in the run-up to the August BoE meeting investors will raise questions on the exact content of the forward guidance of the BoE and on its potential impact on markets.
"After yesterday’s Minutes it is clear that additional asset purchases as a means to support the economy has become far less likely. This might put a floor for sterling, especially in case of more positive data from the UK economy.
"It will be interesting to see the reaction function of the UK currency in this new environment. We got the impression that yesterday’s retest of EUR/GBP above 0.87 was some kind of an exhaustion move and that the topside has become difficult.
"Yesterday we advocated stop-loss protection on EUR/GBP longs as we assumed that the market was positioned sterling short/expected a soft tone from the minutes.
"After yesterday’s rebound of sterling, the topside in EUR/GBP should be better protected. There might be quite some volatility ahead of us in the run-up to the August meeting. Even so, we change our short-term bias for EUR/GBP and look to sell EUR/GBP in to strength in case of return action toward the recent highs."
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Another advocate for further British pound strength versus the euro is Leander Dreyer at Jyske Bank:
"GBP still offers value. For the past three days, we have recommended that investors sell in the range of 86.80-87.50.
"This turned out to be a good range. The market was at 87+ when the minutes from the most recent monetary policy meeting were released, and now we are at 86.33. Particularly the signal that all members agreed (9-0) to maintain the policy unchanged caused the strengthening of GBP. Over the past six months we have seen a distribution of the votes of 6 to 3.
"There are particularly two reasons why the 3 members changed their mind.
1) In the past couple of months, the economic indicators have tended to improve.
2) The central bank governor has been replaced - King with Carney- and initially it is expected that Carney will implement open guidance rather than further QE.
"If retail sales turn out to be surprisingly strong today, GBP may get an additional boost. Risk-reward is still reasonable when buying GBP.
"Particularly, if investors can tolerate a stop loss of 2%, because then they can keep S/L above the trend line and even above the top at the beginning of the year."