GBP/EUR Under Pressure as Profit-Takers Finally Show Their Hand + Stay Cautious on Sterling Warn UBS

As can be seen below, should GBP to EUR close in the red today the pair could be at the start of a period of consolidation, particularly as this week holds little news with the potential to shift the British Pound higher.

A Minor Recovery in Store for the Euro?

The big question is to what extent is the Euro able to recover.

Luc Luyet at MIG Bank says the recovery could be minor:

"EUR/GBP has broken its support at 0.8575 and is now approaching its long-term rising trendline (around 0.8501) which started from the support at 0.7755 (23/07/2012 low).

"A minor recovery could be seen, but, in the broader picture, further weakness towards the 200 day moving average is at least expected. Hourly resistances
are at 0.8569 (15/08/2013 high) and 0.8623 (08/08/2013 high)."

The Euro: This week's PMI data will be closely watched

There is only really one piece of economic news that will have the ability to shift the Pound Euro exchange rate pairing.

"Thursday's Eurozone PMI numbers are the most important event risks for the euro this week because the currency pair's resilience has been largely tied to recent upside surprises in Eurozone data.  Manufacturing and service sector activity is expected to grow at a stronger pace in the month of August," says Kathy Lien at BK Asset Management who says a good outcome here could send the Euro higher.

UBS: Stay Cautious on Pound Sterling

A timely note from Mansoor Mohi-uddin at UBS who cautions against assuming the British Pound has entered a period of unhampered appreciation:

"The Bank of England's new forward guidance has so far failed to convince financial markets that interest rates will not be raised for the next three years.

"Stronger economic data, disagreement amongst Monetary Policy Committee members over the outlook and concern that the new communications framework has too many knock-out clauses have led investors to ignore the central bank's dovish message. Short sterling futures are currently pricing in the first BoE rate hike in September 2014 and Cable has reached 1.56.

"But the MPC is likely to keep pushing back on rate tightening expectations and retains the option of undertaking further quantitative easing. That keeps us cautious on sterling."