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Pound Looks to Break 1.30 Against Euro this Week

Pound Looks to Break 1.30 Against Euro this Week

Euro exchange rates sell off as markets overreact to ECB press conference

The sudden move lower in the pound to euro exchange rate (GBP/EUR) in the wake of the ECB press conference was an overreaction in response to the ECB President's comments about future interest rate direction.

  • The pair has has closed above 1.28 for the past 10 of 11 days now
  • 1.2850 seen as the line-in-the-sand that will support sterling against weakness
  • 1.30 is the magic line that must be broken and held if an uptrend is to establish

The euro exchange rate complex has given up much of the gains made during and after the ECB press conference.

Markets were proven to have been ‘trigger-happy’ in their desire to press the buy button on the euro having heard ECB President Mario Draghi seemingly dismiss the prospect of further interest rate rises.

Draghi's throw-away comment at the ECB press conference in which he suggested that negative rates have reached their downside limit, caused a massive short covering rally in the euro which spiked four big figures off its lows.

"The market however grossly overreacted as Mr. Draghi cleared meant that under current conditions no further move to negative rates would be necessary,” says Boris Schlossberg, Managing Director of FX Strategy at BK Asset Management.

The resultant weakness in the single currency has allowed the pound to climb back above the 1.2900 line. 

The pair has has closed above 1.28 for the past 10 of 11 days now, but in this time it has also failed to close above 1.2960 confirming a tight range and that a struggle lies ahead with regards to advancing further.

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