- The euro reversal from 0.8475 extends to session lows below 0.8440.
- The pound remains stronger, driven by higher expectations from the Bank of England.
- EUR / GBP: Biased down while below 0.8530 – Commerzbank.
The EUR continues to head south against the British pound on Friday. The crossing EUR/GBP it has depreciated around 0.4% so far, reversing Thursday’s gains after its rejection from 0.8475, to hit session highs below 0.8440 and closing in.
The pound remains firmer as the BoE expectations of a rise
The pound has recovered the firm tone of recent weeks, driven by market expectations that the Bank of England could accelerate its monetary normalization plan to deal with inflation. This theory has been supported in the Autumn Budget Report when Finance Minister Rishi Sunak forecast a strong post-pandemic recovery in the UK.
However, the European Central Bank maintained its dovish stance in the face of mounting inflationary pressures and delayed any rise in interest rates until at least the end of 2023, which has affected demand for the common currency.
The ECB’s assumption that current high levels of inflation will be temporary has been challenged by euro zone CPI data earlier on Friday. Consumer inflation accelerated to a year-on-year rate of 4.1% in September, more than double the bank’s objective for price stability, putting the ECB in an awkward position. In fact, yields on German 10-year Treasuries rose 8 basis points following the release of inflation figures, a sign that the market did not accept the bank’s dovish rhetoric.
EUR / GBP should break above 0.8530 to ease negative pressure – Commerzbank
Karen Jones, Technical Analysis Team Leader at FICC Research at Commerzbank, sees the pair skewed to the downside while below 0.8530: “We have initial resistance at 0.8500. Up here is the 55-day MA at 0.8530 and it should regain it to ease the downside pressure and challenge the highs of 0.8659 / 73 since May (…) Below 0.8400, attention should return to the 2019 low of 0.8239 and that of 200 months ma is at 0.8159 “.
Technical levels
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