Commerzbank say Euro to Pound Exchange Rate to Shatter 2016 Best, Could Reach 0.9250

The EUR/GBP exchange rate has moved highy by half a percent and studies suggest it could well be on course to test, and event break, its highest levels of 2016 over coming days.

• Euro to Pound Sterling exchange rate today: 0.8548
• Various Elliot Wave counts anticipate notable move higher say Commerzbank
• Corrections lower in EUR/GBP seen as chances to buy by Hantec Markets
• Intesa Sanpaolo issue downgrades to Sterling following BoE, see limited downside

The Euro is looking intent on testing its post-referendum best against Sterling with that strong push higher being recorded on the 4th of August providing the required impetus.

The move higher can be attributed to a broad-based Sterling weakness

"While other major currencies were little changed amid light summer trade, the pound fell by a noticeable half a percent after comments from an outspoken policy hawk sounded amenable to stronger stimulus should the economy continue to bear the brunt of Brexit in coming months," notes Joe Manimbo, Senior Market Analyst with Western Union.

Manimbo is referencing comments made by the Bank's Ian McCafferty who wrote in the Times newspaper that:

“More easing is likely to be required” and “easing policy further, until we are more certain of the balance between lower growth and rising inflation, risks pushing inflation yet further above the target.”

McCafferty has in the past proven to be resistant to cutting rates and boosting quantitative easing, so his comments suggest the prospect of further GBP-negative actions are high.

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.

 

Momentum to Carry the Euro Higher

The jump in purchasing power for those holding Euros from pre-Bank of England lows £0.8343 to £0.8548 is in fact just another stage of appreciation in a trend that has been alive since the 14th of July.

Based on this momentum alone, we would be comfortable in advocating for further EUR advancements.

The 2016 best lies at 0.8628, a level that should be breached, argues analyst Karen Jones at Commerzbank.

Jones is a well respected chartist in the City, and she notes that, "we have various Elliott wave counts that suggest that the move will extend towards the 0.9250 area."

However, there are some important resistance points that must be hit ahead of what appears to be a long-term target.

"EUR/GBP shot higher and is well placed to tackle the 0.8614 recent high. Longer term the market remains on course for the 0.8815 February 2013 peak," says Jones.

Commerzbank suggest traders should attempt tiny longs on dips to 0.8510 with a stop loss at 0.8360.

Hantec's Perry Eyes 0.86

The move higher in EUR/GBP has extended as broad-based Sterling weakness is trigered by the Bank of England's commencement of asset purchases.

The Bank has already report activity in the short-dated gilt markets, the huge demand that the Bank has created has pushed up Gilt futures while forcing down yields to record lows.

It is this loss in yield that has ensured demand for Sterling is falling away.

“With the Bank of England monetary policy driving a weaker Sterling, the bulls of Euro/Sterling are back in play,” says analyst Richard Perry of Hantec Markets.

The bullish outside day (a bullish engulfing would ideally come at the bottom of a downtrend) posted on Thursday the 4th changes the near term outlook once more it is suggested:

“The pair has spent the past week trying to build above resistance at $0.8470 and now the way higher looks open for a retest of the highs at £0.8625,” says Perry.

Accordingly, Perry argues the bulls will certainly point to the positive configuration on the momentum with the RSI consistently holding above 50, whilst the Stochastics have formed a “bull kiss” and the MACD lines look ready to cross higher again following the corrective phase over the past few weeks.

“The hourly chart showed a choppy reaction post Non-farms but there is a pivot band which is now supportive between £0.8425/£0.8460 with corrections seen as a chance to buy amidst positively configured hourly momentum,” says Perry.

The key support is said to be “clearly” the reaction low prior to the Bank of England decision at £0.8350.

Meanwhile, technical strategist Robin Wilkin at Lloyds Bank notes the EURGBP has respected its technical levels well of late, which gives us confidence in the forecasting abilities of the charts at present. 

Wilkin notes that short-term GBPUSD price action (particularly any break of support) will be important for this pair.

"Given that we favour a consolidation there, the short term 0.8330–0.8515 range may remain intact. In the event that interim highs are broken, there is scope to gradually move towards spike highs at 0.8627. Should range lows give way then subsequent support levels are at 0.8305/00 and 0.8250/00," says Wilkin.

Long term, in conjunction with the GBPUSD view above, Lloyds believe this move to the topside is the last within the correction from the 0.70-0.69 support region.

Above 0.87, sees next resistance in the 0.90-0.92 region.

Intesa Sanpaolo Announce Minor Downgrades to EUR/GPB Exchange Rate Forecasts Following BoE

On the institutional front, we hear analysts at Intesa Sanpaolo are downgrading their EUR/GBP forecasts.

Sterling reacted to the BoE’s stimulus package, by dropping from GBP/USD 1.33 to 1.31, and
from EUR/GBP 0.83 to 0.84.

"This is a modest correction, since Sterling remained inside the range outlined in the previous three weeks, sufficiently distant from post-referendum lows," says Intesa's Chief Economist, Luca Mezzomo.

Indeed, we have been hearing how some analysts have expressed surprise at Sterling's resilience following the BoE event.

Furthermore, Mezzomo argues the reaction of the exchange rate is fully compatible with the downside revision of growth and with the BoE’s policy response, which probably reflects the fact that the market deems credible the strategy adopted by the central bank to counter the negative effects of Brexit.

As a result, Intesa have revised down only slightly the forecast levels for the pound, and only in the near term.

"Our new projections are GBP/USD 1.29-1.31-1.36 on a 1m-3m-6m horizon, from GBP/USD 1.30-1.33-1.38 previously, which against the euro translates into EUR/GBP 0.85-0.83- 0.83 from EUR/GBP 0.84-0.82-0.82 previously," writes Mezzomo.