EUR/GBP: time for supply below 0.8820?
|EUR/GBP offers appeared at 0.8850, but overall, pound's slide continues as hard Brexit concerns remain in focus.
However, whether the euro can continue to outperform the pound in the longer term is another matter. Currently, the strength in the UK economy, as surprising to some as it may be, and the extra stimulus provided by the weaker pound provides an opportunity for the BoE to hold back on delivering another rate cut by year end. However, the ECB remains with an easing bias and the U.S. dollar could harm the value of the euro considerably, especially with the concerns over Germany's economy and the European banks currently.
Brexit: putting " Made in Britain" back on your t-shirts
Lee Hardman, analyst at Bank of Tokyo Mitsubishi explained "The initial negative pound reaction highlights unease that giving up membership of the Single Market will hurt the UK economy, while there is little reassurance at this stage over the form of trade agreement that the government will realistically be able to secure with the EU to help dampen the fallout. The pound is working well as an economic shock absorber. It is now down by round 20% on a trade weighted since late last year which will help offset the potential impact of higher tariffs on trade with the EU. It has resulted as well in a significant easing of monetary conditions in the UK supporting economic growth which is one reason why the economy is holding up better than feared to the Brexit vote shock. The stronger than expected services PMI survey released yesterday provided further evidence of the economy's resilience."
EUR/GBP levels
Analysts at Commerzbank noted that EUR/GBP had me the 0.8815 February 2013 peak. Spot actually made a high of 0.8850 earlier, but with TD resistance at 0.8872, the analysts at Commerzbank said that they would opt not to chase this higher at this point. "We also have a 3 month resistance line at 0.8864. It remains immediately bid above the 0.8633 support line. It is reinforced by the 55 day ma at 0.8542. Please note that we have various Elliott wave counts that suggest that the move will extend longer term towards the 0.9250 area."
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