EUR/GBP Aims for 88 Cents

EUR/GBP Aims for 88 Cents

EUR/GBP Aims for 88 Cents

On a fundamental and technical basis, we like buying EUR/GBP. There’s a European Central Bank monetary policy meeting on the calendar this coming week and we expect the central bank to recognize the widespread improvements in the Eurozone economy. The weakness of the euro has gone a long way in supporting the economy and boosting inflation leading ECB member Villeroy to say that growth will be solid in 2017. We believe that this is a view shared by a number of policymakers. According to the last ECB minutes, headline inflation is rising significantly giving the central bank more reasons to consider reducing asset purchases. Any recognition of tapering would be euro positive. Meanwhile UK Prime Minister May’s highly anticipated Brexit speech scheduled for next week. Sterling could come under selling pressure as traders unwind any remaining sterling long positions. Its unclear which way she will swing (hard vs. soft Brexit) and this uncertainty should weigh on the currency. May is expected to lay out her approach to leaving the European Union including her possible plans for immigration and single market access. While she could adopt a softer approach, the mere reminder that Brexit is around the corner should spook investors.

Technically EUR/GBP has broken its 100-day SMA and there’s a 20/50 day moving average cross that signals a stronger rally. The latest gains has also taken the pair above the 61.8% Fibonacci retracement of the 2009 to 2015 decline. As long as EUR/GBP holds above 86 cents, a move above 88 cents is likely. However if it drops below 86, then the pair could tumble to 0.8500.

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