Researchers on the technical desk at UBS note that the Euro has stalled against the Pound, having been trading bid for almost a month.
Analysts are now trying to gauge the extend of the potential decline.
The failure in the Euro on the charts has been reinforced by fundamental events seen on Wednesday, June 7 in which a leak concerning changes to inflation forecasts at the European Central Bank has seen the Euro sold across the board.
Bloomberg report that - “an official familiar with the matter” - says the ECB’s draft projections show inflation at roughly around 1.5% each year in 2017, 2018 and 2019.
The previous projections in March foresaw rates of 1.7%, 1.6% and 1.7%, respectively.
On the back of the news the Euro was seen down half a percent against the Dollar and Pound and only SEK is doing a worse job today.
This suggests that the ECB is unlikely to strike the bullish tone that many who had been speculating on a stronger Euro had hoped for.
The currency must therefore correct lower.
In a note to clients on June 7, UBS observe that the Euro to Pound exchange rate has, “now potentially stalled ahead of the big resistance level at 0.8787” which is the high from March.
In GBP/EUR terms this is 1.1380.
Analyst Robin Wilkin at Lloyds Bank sees the support for Euro being at 0.8700/0.8690.
"We are watching this in conjunction with EURUSD supports," says Wilkin. "A break of these levels should confirm the signals we are getting in both markets looking for a short-term pullback."
This week has seen the Euro fail to form a new high, “suggesting possibly that a reversal towards the 200 day moving average is coming,” say UBS.
The 200 day moving average is presently located at 0.8598; in GBP/EUR terms this equates to 1.1631.
This provides a good guide as to where the Pound could rise to on the event on a Conservative majority being delivered on Thursday night.
For other insights on how this trade might trade on the result read:
- How low will GBP/EUR go on a hung parliament
- Labour minority government most friendly outcome for Pound Sterling
- SEB's exchange rate predictions on General Election 2017 outcome
