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"We may now be entering a period of euro weakness, like what we saw in 2013-2015."
According to a new analysis, the Euro is at risk of a notable breakdown against Pound Sterling as we enter a prolonged period of broader Euro weakness.
"We may now be entering a period of euro weakness, like what we saw in 2013-2015. Back then, a wave of pressure on the euro pushed EURGBP towards 0.7000," says Alex Kuptsikevich, senior market analyst at FxPro.
The call comes as the Euro to Pound exchange rate retreats back to 0.8520, (in Pound to Euro terms this equates to a rise to 1.1740).
The pair bounced off this level in June and August last year and the test of the same level in late January and early February triggered a shake-out and a rebound in the Euro.
"But active declines resumed on Tuesday and Wednesday, and the pair is testing multi-month lows with renewed vigour," says Kuptsikevich.
Technically, a break of support at 0.8500 would allow a move towards 0.8250-0.8300 to be considered as a working scenario, he explains. (A break in Pound-Euro at 1.1765 allows a move higher to 1.2050-1.21).
Above: EUR/GBP at weekly intervals showing the key 0.85 line (or 1.1765 in GBP/EUR terms. Track GBP and EUR with your own custom rate alerts. Set Up Here
"A decline of 2.0-2.5% looks like a significant move. However, we may be seeing the beginning of a new global trend," says Kuptsikevich.
"EURGBP has tried to break above 0.9200 several times since 2016, mainly triggered by the weakness of the pound. We may now be entering a period of euro weakness, like what we saw in 2013-2015. Back then, a wave of pressure on the euro pushed EURGBP towards 0.7000," he explains.
Kuptsikevich says this global reshuffle would be the result of the increasing divergence in economic dynamics between the Eurozone and the UK.
"With interest rate changes on the agenda, interest is being drawn to the more buoyant economies where the UK has an advantage due to domestic demand," he says.
Signs of a UK economic rebound:
- Halifax said Wednesday its measure of UK house price trends revealed a 1.3% month-on-month rise in January, up from 1.1% in December.
- UK total retail sales increased by 1.2% year on year in January, said the BRC
- UK services activity rose at the fastest pace in 8 months, according to January PMIs
- UK business confidence hit a 2-year high in January, said Lloyds Bank's Business Barometer
Improving personal finances boosted UK consumer confidence to two-year highs in January, according to GfK
FXPro says the level of interest rates and interest rate expectations will also be critical in the coming quarters; the Bank of England's base rate is now 5.25%, compared with 4.5% for the ECB.
"However, markets expect the Bank of England to cut four times to 4.25% by 2024. The ECB is expected to start its rate-cutting cycle a little earlier and bigger," says Kuptsikevich.
But looking for a more determined breakdown in the Euro-Pound might require some patience and FXPro says a break of 0.8500 is still needed.
"It's not yet a done deal. There is still a relatively high chance of renewed gains from current levels, as the current multi-month lows may attract buyers into the EUR," says Kuptsikevich.