EUR to GBP in Overbought Territory
The euro retains positive momentum against sterling with comments from ECB governing council member Ewald Nowotny ensuring recent gains are held.
The market attributed the gains in the euro to comments from ECB member Ewald Nowotny who said markets had overestimated what action the ECB would take at its 3 December policy meeting, adding that there were exaggerated expectations in relation to the actions taken by the ECB.
Also aiding the shared currency are supressed commodity prices. Due to Brent crude oil’s dip below USD 40 a barrel on December 8, there has been a broad based sell-off in risk assets that hit commodity currencies but lifted funding currencies such as EUR and CHF.
Currently the EUR to GBP exchange rate is at around 0.7250 on the open markets.
Retail transfers and payments made by banks are quoted around the 0.6969 area while independent providers are scraping less of a margin and offering payments in and out of Europe at around 0.70.
However, there is not much support to be had for GBP either.
Disappointing UK Manufacturing output data has weighed down the currency; manufacturing output fell 0.4% in October after a 0.9% rise in September.
The surge in September had brightened hopes that the manufacturing sector could be a real driving force to boost the UK economy, but the dismal October reading has greatly dimmed this.
Additionally, it appears that there will be no boost from the Bank of England (BoE) policy meeting on Thursday as it is widely expected to be a non-event.
The markets expect no change in policy from the BoE’s last policy meeting for 2015.
EUR/GBP longer term risks remain on the downside below 0.7490.
“EUR/GBP is consolidating below hourly resistance at 0.7279 (08/12/2015 high). Hourly support is given at 0.6982 (17/11/2015 low).
“The technical structure suggests that an upside momentum may be gaining some traction. Expected to show further consolidation.
“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 (03/02/2015 high),” says Swissquote.
Nonetheless, if the risk-off sentiment takes hold again in the US markets later today, there could be a repeat of yesterday’s upside movement.
EUR/GBP in Overbought Territory – Danske Bank Research
According to their short-term financial models, Danske Bank Research believes EUR/GBP is currently trading in overbought territory after the pair’s December 8 rally.
Looking forward, Danske Bank Research states, “Strategically we still like to be long GBP due to the very low Bank of England rate hike expectations for the coming 12 months (first full 25bp rate hike priced in November 2016), which we still think is out sync with the strong labour market.
“However, while the recent move higher indeed looks like an attractive selling opportunity, we think that the recent decline in the oil price and current poor risk environment will weigh substantially on Bank of England’s overall assessment, thus increasing the odds that the Bank of England is likely to maintain a fairly dovish stance at its meeting on 10 December.”
DNB See Further EUR Weakness
Growth in the euro area is likely to abate and be weaker than expected in 2016 warns analyst Camilla Viland at DNB Bank.
Inflation is likely to move upwards, but remain muted.
"We believe ECB is done cutting rates, but that further extensions of the asset purchase programme is likely. Monetary policy is likely to remain very expansive and weigh on the euro," says Viland.
Meanwhile, Bank of New York Melon have told us they expect to see upside in the Britsh pound to be limited in 2016; the currency could weaken against counterparts.
“Sterling often trades as a European Dollar. However the UK is more dependent on external trade (with the EU) , than the U.S, and sterling has reached relatively strong levels versus the euro,” say BNY.
The views on sterling and the euro are coming thick and fast and it is up to those watching the markets to fathom out the various arguments and make their decisions based on the better arguments.
