EUR/GBP Gains But "We Will Maintain Bearish View While Capped Here"

EUR/GBP reaches session highs on the heels of strong Eurozone PMI data and Sabine Lautenschlaeger’s rejection of President Draghi’s policy stance, while the British pound suffers across the board.

Against the backdrop of this week's November Eurozone PMI report the EUR has traded with a positive tone.

Another boost for the EUR was delivered from the ranks of the ECB. Yesterday, Sabine Lautenschlaeger, an ECB executive board member made her opposition known on the prospect of a December interest rate cut while speaking in Munich.

Essentially, Lautenschlaeger showed herself to be President’s Draghi’s opposite.

She opposes QE expansion, saying current EU stats points towards recovery and the present QE programme should be given more time to perform.

This is an interesting development, as Lautenschlaeger position is not only a surprise given President Draghi’s past comments, but also because the ECB Executive Board is known to always display a united front.

Pound Falls On Bank of England’s Lingering Uncertainty

In the absence of domestic data to support the GBP this week, the currency vulnerabilities were bared as it fluctuated against market volatility.

The pressure began on Monday. GBP had fallen against the embattle EUR, which received a boost from encouraging manufacturing growth data from the EU’s two largest economies: France and Germany.

Later in the day, some losses were retraced but movement was limited.

Today the downward pressure continued, the market anxiously awaited Bank of England’s governor, Mark Carney, and other bank officials’ appearances before the Treasury Select Committee.

Bank officials gave no indication of a rate lift off timeline, Governor Mark Carney stated low interest rates are to continue “for some time” and “even with limited and gradual rate increases it still will be a relatively low interest rate environment.”

Andy Haldane continued his dovish posturing; warned of “headwinds” from global economic slowdown and a further lowering of interest rates may be needed.

The markets were not impressed, and this was reflected in the pair’s conversion rate which moved against the pound through the session.

Currently, the euro to pound exchange rate is around 0.7070, up 0.60% from its open.

Concerning the technical outlook EUR/GBP continues to hold above the new low at 0.6985.

“This new low has not been confirmed by the daily RSI, which has diverged," says Karen Jones, analayst at Commerzbank, "this is reflecting a loss of downside momentum and we note that the daily Elliott wave count is indicating a .7075/.7130 rally ahead of another leg lower."

“Above here initial resistance lies at 0.7196/98, the recent high, and major resistance continues to be seen at 0.7481 (this is the location of the 2013-2015 downtrend).

“We will maintain our bearish view while capped here.”