Euro to Pound Exchange Rate Finding Buyers at 0.70, Seen as Massively Oversold
The euro is carving out a base against the British pound following weeks of losses with traders targeting a well-worn zone of support to exit shorts.
The euro to pound exchange rate has been in decline since mid-October, those selling euros for international payments will have done so from around 0.74 in mid-October.
But procrastination would have been costly as the steady trend lower has taken the market to the 0.70's.
There is relief to be had though with 0.70 proving to be a reliable support zone that has arrested broader sell-offs on four occasions in 2015:
The euro has also come under more pressure against the pound but again, it was not significant enough to force the pair through this week’s 0.70 support, which is proving to be a key psychological level.
"Clearly plenty of downward pressure remains here but buyers continue to come in at 0.70 and I think it’s going to take something very significant at this stage to break it, possibly an indication of the size of the ECBs stimulus package," says Craig Erlam at Oanda.
The technical significance of 0.70 will likely hold the euro over coming days, however a break of this level will invite a run down to the July record low at 0.6930.
“The pair’s technical structure still shows a clear negative pattern. Hourly support lies at 0.6982 has been broken," says a technical briefing from Swissquote Research.
Analysts at the Swiss brokerage says resistance can be found at 0.7199. Expected to further consolidate below 0.7000.
“In the long-term, prices are in an underlying declining trend. The general oversold conditions suggest a limited medium-term downside potential. A key resistance lies at 0.7592,” confirm analysts.
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.
Tying in with the technical element of the euro's story are the fundamentals.
The End of the British Pound Period of Strength?
A word of warning for those expecting pound sterling to move yet higher against the euro, and other major currencies for that matter.
Professional trader Sean Lee at ForexTell says, “there has been something unconvincing about the GBP in recent weeks and I feel that the big bull run, which has lasted now for 30 months, may be about to end.”
With that in mind, Lee says it’s difficult to be bullish EUR against any other currency in the current environment, “but this pair is heavily oversold on longer-term time-frames. Prefer to look elsewhere for my GBP short trade.”
European Central Bank's Cuts Now 'Priced in'
The stabilisation we are seeing across the euro exchange rate complex actually ties in with the belief that markets have fully absorbed and digested the idea that the European Central Bank will cut their base interest rate in December.
The ECB’s account of its October monetary policy meeting reveals a Governing Council that is primed and ready for action.
"We consider there to be little by way of genuinely ‘new’ information in the published summary of their deliberations. Their more apprehensive view of the macroeconomic outlook appears to have precipitated a rich discussion on potential options, and we still see the bias as skewed heavily toward further action. We reiterate our expectation of a 20bp deposit rate cut and a QE extension," says Economist Richard Hillary at RBC Capital in London.
Of note was the deterioration in the ECB's inflation outlook which sees the likelihood of further downward revisions to staff forecasts.
This invites the prospect of some aggressive action in December. If the moves are more aggressive than markets had been expecting we would expect the euro to pound exchange rate to break decisively through the 0.70 support level and towards 0.68.
