Euro to Pound: Has EUR Reached its Limit?
Has the euro's time in the sun against the British pound come to an end?
At 0.7422 the EUR/GBP recorded its best rate of exchange since the 7th of May courtesy of the chaos inflicted on financial markets by Chinese investors.
However, on Tuesday the British pound recovered as market sentiment improved and foreign exchange markets correct from overbought conditions.
Has the limit in the euro to pound exchange rate been reached?
"We have the impression that the topside in EUR/GBP is growing better protected, with important resistance in the 0.7483/0.75 area. Interest rate differentials between the euro and sterling are still substantial and in favour of the UK currency. A cautious sell-on-upticks approach can be considered," says Piet Lammens at KBC Markets.
There is no denying that the EUR/GBP looks somewhat over-bought; a state of affairs confirmed by a RSI reading at 73.8. Anything above 70 is considered to represent a market in need of a correction lower.
We now look to 0.72 as the level of support which could keep the new-found uptrend alive.
“The euro has found a big positive in the latest market upheaval that has prompted many to exit profitable trades in the U.S. dollar to cover losses elsewhere,” says analyst Joe Manimbo at Western Union.
This has provided a snowball effect in the euro exchange rate complex as traders dump more dollars onto the market and snap up euros as trading positions are exited.
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.
“The euro soared to six-month highs against the greenback as heightened worries about global growth sparked a stampede out of risky assets, like carry trades, which were funded using the low-yielding single currency,” says Manimbo.
As long as market turmoil persists, the euro could continue its recent ascent.
The more toxic market backdrop also left sterling vulnerable as the climate augured for lower interest rates at the Bank of England.
“Both the Fed and Bank of England are perceived at the head of the line to raise interest rates. However, central bank rate hikes are seen on hold until order and stability return to global markets,” says Manimbo.
The strength in the USD and GBP relies heavily on the prospect of higher interest rate yields in the future which will sustain global capital inflows.
Regardless, to us it looks increasingly as though the euro has carved out a floor against the pound, potentially bringing an end to the longer-term downtrend.
Markets: 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.
