On Friday, sterling continued to trade strong against the euro. Global euro selling during the morning session in Europe pushed the pair to an intraday low in the 0.8356 area. However; once again, a real test of the key 0.8334 support didn’t occur.
The UK PPI data were close to expectations and had no impact on trading. Later in the session, cable moved more in step with EUR/USD, so EUR/GBP settled in a sideways trading pattern and closed the session at 0.8395, compared to 0.8368 compared to 0.8395 on Thursday.
This morning, the Rightmove house prices came out at a soft -3.0% M/M 0.4% Y/Y. Later today, only the input PPI data are on the agenda. We don’t expect this series to have a lasting impact on sterling trading. This morning in Asia, the pair held close to the 0.8350 mark, but the euro tries to regain some ground going into the start of the European trading session. We expect global issues and technical considerations to set the tone for EUR/GBP trading today.
Longer-term, we don’t expect a major comeback of sterling (yet). The debate on more QE is delayed, but probably not closed. The impact of the budgetary measures on growth has still to materialize. We still assume that the Bank of England will lag the European Central Bank on the way to policy normalization. Two week’s ago, the pair showed some tentative signs of bottoming. So, we installed a cautious buy-on-dips approach. Last week’s price action showed that global sentiment on the single currency remains fragile. In addition, the UK currency didn’t trade that bad either. So, the day-to-day momentum doesn’t go our way.
For now we hold on to our tactics. Stop-loss protection in the 0.8335 area (correction low) remains warranted to limit the damage in case of renewed intra-EMU tensions (or of further sterling strength).
Content provided by: KBC Bank