Euro to Pound Sterling Exchange Rate Continues Rising to 0.86 highs as BOE's McCafferty Warns of More Stimulus

The EUR to GBP conversion edges higher at the start of a new week and looks poised to extend another up-leg to match the 0.8620 highs.

euro exchange rate 3

  • Pound to Euro exchange rate today is seen at 1.1715
  • The Euro to Pound Sterling exchange rate is today seen at 0.8524

The euro started the new week on a strong footing as Eurozone banking stocks received a boost from increased investor confidence.

Good news on the German economy also helped the euro stabilise after industrial output topped forecasts with a 0.8% rise in June.

Investors will have to wait untill Friday, however, for the week’s most meaningful look at the euro zone economy in the form of second quarter growth and factory output data.

GDP in the 19-nation economy is forecast to slow to a 0.3% quarterly growth rate, half the pace of the first quarter’s 0.6% pace.

The pound, lost further gound on Tuesday after comments from Bank of England (BOE) hawk Ian McCafferty in which the normally quite hawkish rate-setter - hawkish means in favour of higher inetrest rates -  said he saw rates falling to only just above zero, and QE rising even higher, in the event the economic situation worsened.

 

His remarks eclipsed strong data from the British Retail Consortium, which showed shoppers spent 1.1% more in July compared to July in 2015, a figure which roundly beat expectations of -0.7% based on Brexit down-turn fears.

The data was explained as resulting from consumers taking a "life must goes on" attitude to Brexit.

Helen Dickenson, chief executive of the BRC, also commented that it was still too early for most households to feel a "material" impact from Brexit.

The July heatwave was a factor as it increased sales of barbeques, food and drink and fashion items.

Evidence from research company Forwardkeys also suggested increased tourism in the wake of the pound's post-referendum plunge also increased sales reciepts.

Other data also suggested Consumers were cautiuos about the longer-term outlook saying they were not confident about spending on nonessentials in the longer-term.

From a technical point of view the EUR/GBP pair is biased to moving higher, to an eventual target at 0.86.

The move up from the May lows has been interpreted as a five wave Elliot Wave, which is currently unfolding in the final fifth wave higher.

This should, at the very least, retouch to 0.8622 highs, of not go even higher.

Commerzbank’s technical analyst, Karen Jones, sees the pair reaching 0.8815 eventually, as long as the 0.8228/0.8110 lows hold.

We see the pair as poised to move in another leg from its current 0.8490s level to 0.8600.

 EURGBPAug08

The pound to dollar pair is also selling off heavily as markets price in a higher possibility of the Federal Reserve increasing interest rates before the end of the year.

Despite recent commentary from a leading Fed official, Jerome Powell, that suggests slowing growth might still be a concern preventing officials from raising interest rates, Friday’s higher than expected 255k NFP release was a major plus for the economy as well.

From a technical perspective the charts are showing the pair has broken even below the key 1.30 level, after flirting with the neckline of a supposed inverse head and shoulders (H&S) pattern which it was thought might be showing a reversal in the pair, and the start of a more dynamic up-phase.

The pair has broken below a key trend-line linking the ‘head’ of the H&S with the ‘right shoulder’ and this was a major signal negating the bullish potential of the reversal pattern.

The pair has fallen to lows of 1.2980, and if it can re-break below this level then that will confirm more downside, probably to 1.2860 and the S1 monthly pivot, an area used by traders to gauge the trend and identify support and resistance.

GBPUSDAug08

The pound to euro is like an upside-down EUR/GBP.

Again the pair appears to be in a five wave move down from the May highs.

Within the Elliot Wave it appears to be unfolding in the fifth smaller wave down, which should match the 1.1600 lows at the very least.

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"EURGBP has respected its technical levels well of late. GBP weakness in the aftermath of the BoE and NFP saw repeated tests of the 0.8485-0.8515 area, which continues to hold," notes Robin Wilkin at Lloyds Bank.

Short term GBPUSD price action (particularly any break of support) will be important for this GBP/EUR it is suggested.

Given that we favour a consolidation seen in GBP/USD, 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, 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.