GBP/EUR Exchange Recovery Holds for Now, But 1.34 Looms
The British pound has found support against the euro for the time being, but in our opinion the subsequent recovery has been shaky.
The pound to euro exchange rate (GBPEUR) continues to look vulnerable to further downside selling with the pair sitting below a number of key momentum indicators.
Momentum remains negative with the exchange rate sitting below the 20, 50 and 100 day moving averages. This tells us that buying interest remains outweighed by selling interest and we look for a move above the 20 day MA as the first sign momentum is returing.
The 20 day MA is at 1.4011 at the time of writing.
For now watch that area at 1.36:
This support zone held strong in the midst of Chinese-inspired market turmoil and offers the best chance of a rebound in fortunes for the pound to euro pairing.
A break below here invites a move lower to 1.34.
Latest Pound/Euro Exchange Rates
  | Live: 1.1391▼ -0.13%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.1004 - 1.1049 |
**Independent Specialist | 1.1232 - 1.1277 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Bill McNamara at brokerage Charles Stanley agrees that the outlook ultimately hinges on the 1.36 zone:
“The chart shows that it has also retreated to a two-month low and while this sudden plunge has left sterling looking relatively oversold the overall impression is that there is still scope for further near-term weakness. In fact, a test of the 200-day moving average, at 1.36 or so, is starting to look like a realistic expectation.”
Below 1.36 anything is possible though as it would suggest markets have completely abandoned hope for interest rate rises in the next 4-6 months at the Bank of England.
This would require a substantial deterioration in the domestic market, something we not see at this juncture.
After ending last week at its lowest levels for two months thanks to positive news from the Eurozone and the resignation of the Greek Prime Minister, the GBP/EUR rate has continued to fall to levels not seen since April today on the back of global fears over China.
"In just over one month, sterling has weakened by 6% and indicators today suggest that this tumble will continue," warns Carl Hasty at Smart Currency Business.
Global Markets: Yet Another Yuan Devaluation
With the US markets capitulating at the final hurdle last night, and more volatility in the Chinese markets this morning, the European indices opened at a loss this Wednesday.
Another yuan devaluation saw the currency hit a 4 year low, and continued the People’s Bank of China’s scattershot approach to providing aid for its slowing economy and erratic stock market.
Meanwhile Its last move, the PBOC rate cut, was as insufficient as many expected, even if it did arguably prevent a third day of complete collapse for the Chinese markets.
