GBP/EUR is Casualty of US Non-Farm Shocker, A Return to 1.24 is now Possible
The GBP to EUR exchange rate has slumped lower and is threatening to invalidate its uptrend following the release of United States employment data.
"A sustained break below 1.2903 would be a first indication of further deteriorating sterling sentiment. We maintain a sterling negative bias.” - Piet Lammens @ KBC Markets.
On the surface, employment figures in the US should have little to do with either the euro or pound sterling.
But it does - the selling of dollars has seen the euro bought, and this strength in the euro is so widespread that the pound is in turn being hurt.
The US Bureau of Labor Statistics reported today that “nonfarm payroll employment changed little (+38,000).”
An understatement if ever there were one - this was a massive miss on the 164K markets were forecasting.
The currency market is now being bucked by vast flows of funds as investors shift their money into different jurisdictions and into different products as the entire investment environment shifts following the data.
The single biggest point to note is that the US Fed will almost certainly shy away from raising interest rates in June/July, indeed, money markets are showing a 2016 rate rise may now not happen.
As such, expect the dollar to continue selling as money flows into higher-yielding destinations. June could be a poor month indeed.
Latest Pound/Euro Exchange Rates
  | Live: 1.1449▲ + 0.05%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.106 - 1.1106 |
**Independent Specialist | 1.1289 - 1.1335 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
We wrote at the beginning of the month that a sharp recovery in the EUR/USD could happen and indeed it looks like this forecast was a correct one.
"After all the talk of an imminent rate rise to come, the Fed could be left slightly red-faced after this shocker of a number,” says David Lamb at FEXCO, “unless we have a major turnaround next month, the US could have a new President before we see rates go up.”
Analyst Piet Lammens at KBC Markets in Brussels says he expects the GBP to EUR exchange rate to be pointed lower now:
"A sustained break below 1.2903 would be a first indication of further deteriorating sterling sentiment. We maintain a sterling negative bias.”
Support Looks to Give Way, 1.24 Seen Ahead
We had argued previously that the GBP/EUR’s outlook was positive while above the ascending trend line shown below:
However, we will watch the close at the end of the week to ascertain whether the level has in fact been breached to the downside.
If it has then we will turn more confident in our negative bias.
From here we would look for the GBP/EUR exchange rate to fall to 1.28 where the 100 and 50 day moving area of buying interest can be found.
A failure here then opens the door to a rapid decline towards May congestion zone just above 1.26.
Below here lie the 2016 lows at 1.24 which would surely be tested should uncertainty grow ahead of the June 23rd Referendum.
