Wednesday, 29 July 2015

Euro Forecast to Slip Down to 0.68 Against the British Pound

Euro to pound sterling projections TD Securities

The euro to pound (EURGBP) exchange rate remains caught in a downward channel despite putting in some significant moves higher over the course of the past week.

The euro rallied against the pound on Thursday following news that the UK's retail sector unexpectedly shrunk in June.

Our historical data confirms a high of 0.7034 was reached earlier this week while we are presently witnessing higher levels at 0.7046.

The move higher represents an impressive bounce off the floor of 0.6943, this low was achieved on the 17th of July. However, we hear from seasoned analysts that any spikes in the euro will only likely attract further selling interest. 

"Near-term momentous moves higher have added two bullish looking daily candles in three days. But In a greater scheme of things this is anyway likely to be a correction within a still ongoing downtrend in a higher division. So look for sellers coming back to market somewhere between here and 0.7137," say SEB Bank in a strategy note to clients ahead of the weekend.

To show sellers’ initiative coming back SEB are looking at support at yesterday’s 0.7039 mid-body point being lost and later also a near-term “b-wage low” at 0.6964.

Note, all currency quotations in this article are to be assumed as spot market rates. Your bank will deliver a lower rate owing to the subtraction of a spread. An independent specialist would however gladly get you closer to the market, in some instances they can deliver up to 5% more currency when compared to your bank. Find out more. 

The recent move higher in EUR/GBP, "satisfies the minimum requirement for the bounce off of Monday’s lows. We cannot rule out another squeeze higher in the very near term, but we think the 0.7070 region should contain any further strength,” says Richard Kelly at TD Securities.

Looking at the longer-term forecasts, TD Securities expect a move toward 0.68 in coming days as the theme of policy divergence between the UK and Eurozone gains traction.

The reason for the losses in GBP (retail sales data) by no means represent a game-changer for the pound sterling complex, hence why market analysts continue to see any pullbacks in sterling as better levels to buy back the currency ahead of further gains.

"June’s UK retail sales report exceeded even our own downbeat expectations. Sales fell 0.2% m/m on both the headline and ex-auto fuel components against consensus expectations for a rise of 0.4%," says Paul Fage, also at TD Securities.

There is no doubt that this has been a tough week for those watching the euro / pound market, EUR/GBP as fast as it goes up it comes down again.

"This choppy behaviour we suspect is a market trying to recover off the base of a 6 year channel at .6967. Rebounds should struggle 0.7057/65 and ideally remain contained by the .7151 short term downtrend," notes Karen Jones from Commerzbank.

Jones reckons the base of the 0.6967 6 year down channel was the medium downside target and this together with the recent low at 0.6937 provide key support. This is the break down point to the .6571/41 the 2007 low.

Reference: Rob Samson

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