Euro to Pound Conversion Rallies as GBP Feels the Wrath of the Bank of England
The euro made a strong move higher against the pound sterling as the Bank of England actively sought to devalue the UK currency.
The euro to pound exchange rate corrected higher bringing to end the multi-week downturn that saw many hoping that the pound would hit its best exchange rates of 2015 once more.
The culprit for the reversal is the Bank of England who made it clear on Thursday the 5th of November that they have no intention of raising interest rates.
In fact, there is a distinct feeling that policy makers actually want a weaker pound and they are willing to fight any sterling strength.
Markets had bid the pound sterling higher on the back of strong data over recent days in the belief that it would prompt the Bank of England to raise interest rates. Data does not seem to be a consideration any longer and concerns are starting to grow that we are witnessing the gun being fired on the next debt crisis.
Sterling strength actually meant that the move lower in the EUR to GBP conversion was so strong and fast that warning lights started flashing that a reversal would soon take place.
The daily charts show that the Relative Strength Index (RSI) on the chart hit a reading at 27.9, an RSI below 30 signifies an oversold asset and invites a correction.
As we can see, the RSI (the bottom line) does not stay around these levels for very long and trends around the 50 level:
As such the RSI proved to be an almost perfect signal to the ensuing correction which required the pound to fall back against the euro for sense to be restored.
Lloyds Bank Research also called the correction saying "the GBP has continued to trade well at the start of this week, but technical indicators are warning the move is a little overdone in the near term, especially in EURGBP."
Where will the euro / sterling exchange rate go next?
The support line at 0.7032 came to the aid of the euro back in August and it was from here that the shared currency was able to rally towards the October highs.
Latest Pound/Euro Exchange Rates
  | Live: 1.146▲ + 0.15%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.107 - 1.1116 |
**Independent Specialist | 1.13 - 1.1345 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
It appears markets have a taste for buying the euro at these levels and as such we would not be surprised to see the EUR/GBP move steadily higher from here.
The first line of resistance is the 0.7156 which could halt gains in the near-term. Beyond here watch for a move towards the next congestion zone at around 0.7243.
Longer-Term Picture Supports Sterling, Euro Gains to be Limited
I wrote at the beginning of this article that the EUR to GBP may be oversold in the short-term timeframe.
Timing is everything, and the longer-term picture remains confortably pro-sterling at this stage.
"Our underlying bias remains that we are heading down to re-test the range lows around .6900 and so the upside should remain limited," say Lloyds.
The euro faces a softer outlook owing to growing expectations for further easing to be conducted at the European Central Bank in December.
President Draghi in a speech on the 3rd re-confirmed October’s ECB comments around reviewing their stimulus programme
"As such EUR gains generally are likely to be limited," say Lloyds.
