After the latest developments in the United Kingdom, with the supply crisis and also considering the technical outlook, analysts at Rabobank revised to the upside the forecast for the EUR/GBP pair. They warn that a close above 0.8648 could increase the scope that 0.87 could be back in play in the near-term.

Key Quotes: 

“EUR/GBP is testing the water above the 200 day simple moving average at 0.8648 having failed earlier in the session to retrace any part of yesterday’s spike higher.  A close above this level increases the scope that 0.87 could be back in play in the near-term.  BoE Governor Bailey is due to take part in a panel discussion with other key central bankers this afternoon.  His comments will be closely watched by GBP investors, though his remarks in recent days appear to have contributed to the negative sentiment that is undermining the pound.”

“EUR/GBP remains a long way above its pre-Brexit referendum levels and it can be assumed that the weaker tone in the pound relative to its pre 2016 levels, is connected with the extra uncertainties resulting from the Brexit process.  Labour shortages and supply chains disruptions are currently common across the globe.  However, it is likely that Brexit is worsening these issues for the UK with price pressures also likely to be enhanced by extra regulations and paperwork that are now necessary on many goods traded between the UK and the EU. This may be increasing the vulnerability of the pound.”

“Despite the hawkishness of Bailey, we have abandoned our long held year-end target of EUR/GBP 0.84 in favour of a more moderate move to 0.85.  However, in view of the clouds gathering over the UK economy, this may also prove to be optimistic for GBP.”
 

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