GBP/EUR Exchange Rate Falls from BEST Level in 2 Years as GBP/EUR is Now Due a Tumble

The pound to euro exchange rate is seen 0.3 pct lower at 1.2621 at the time of writing, the euro dollar is 0.05 pct higher at 1.3471.

See our latest update on how poor retail sales have hurt the GBP/EUR.

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Regarding the outlook for the pound euro exchange rate, forecasters at Afex remain of the opinion that we can't rule out a decline in GBP/EUR:

"Some near-term retracing activity for sterling, both versus the U.S. Dollar and also major European currencies would not be unseemly especially as prior trends appear to have peaked in many instances. However given the improved macro Sterling outlook, emergent weakness will probably be short-lived."

Lloyds Bank Research say sentiment towards GBP has softened recently and the absence of an upside surprise in economic data releases will likely see GBP continue trade with a heavy tone.

However, longer-term Adex tell us that further gains in the pound euro rate are possiblie, "even if prices fail to immediately vault the notable (mid-2012) cyclical high at 1.2900, an eventual break of this prior peak remains readable."

Elsewhere GBPJPY and GBPCHF have both reached but not yet established themselves beyond obvious resistance levels –at 175.00 and 1.5500 respectively- but again dips as and when seen are seen more as a response to recent strength rather than any attempt to top out in a meaningful manner.

So while some loss of upside momentum is apparent here and although medium term Sterling trends remain positive, a period of consolidative work would not surprise before the next sizeable push higher is seen.

"On this basis studies suggest gains beyond 1.2700 are probably unsustainable for now and whilst an eventual push to if not above 1.3000 is still implied this advance may well be delayed for the time being. Nearby resistance exists at 1.2675 then 1.2750, with little support evident until 1.2500. A break here would imply an interim high already seen with scope for continued retracement to 1.2425 or even 1.2350 before support returns. NB: whilst 1.2500 holds, values might yet range sideways rather than markedly lower which will also obviously keep 1.2750 in more or less direct focus," say Afex.

FX Set-up: Geo-Political Headlines to Drive Price Action

An extremely thin data calendar both in Europe and Asia overnight and throughout the NA session will leave market participants mostly focused on news headlines reflecting geo-political developments in Ukraine and the Middle East, and – to a lesser extent – reported earnings.

"Later in the week, market’s attention to turn toward CPI, home sales, Markit's PMI, and durable goods orders in the U.S.  Meanwhile, global PMIs on Thursday are likely to be soft, and we also look for disappointment in UK retail sales on Thursday and Q2 GDP on Friday.  The BoE Minutes on Wednesday the only seemingly hawkish risk if they suggest some readiness to signal in the August Inflation Report a firming chance of tightening this year, or at least dissent in favour of an imminent hike," says Shaun Osborne at TD Securities.

According to Osborne, the expected soft patch in the data this week, combined with ongoing geopolitical tensions should continue to support the USD.  

"EURUSD is likely to remain confined to the low 1.35 area today, while USDJPY price action will be driven by risk sentiment and equities performance, with the pair fluctuating around 101.10/60 on the day," says the analyst.