Euro Succumbs to British Pound and US Dollar and Analysts Forecast Yet More Weakness

RBS reckon the outlook continues to favour the US dollar and British pound over the euro as a result - "we may be in a larger thematic shift from USD-funded EM carry trades into EUR funded carry trades."

Fundamentals aside - we cannot ignore the political risks that are hammering sterling at present and affording EUR-GBP some relief. Uncertainty over the outcome of Scotlands referendum on indpenedence have jolted markets out of complacency.

Euro Rates Today (11/09):

• At the time of writing we see the pound to euro exchange rate (GBP/EUR) continuing to recover from the eye-watering 1% slump seen on Monday. At the time of writing the rate is at 1.2558. Expect a strong recovery should a No vote be secured in the Scottish referendum.
• The euro to dollar exchange rate (EUR/USD) is meanwhile at 1.2921.

If you are holding out for better rates DON'T HESITATE: Ask your FX provider if they have the relevant stop loss order to protect against downside losses and a buy order to take advantage of your best-case rate when reached.  Using an independent provider can deliver up to 5% more FX than your bank would in some cases.

Will the Euro Enjoy Calmer Conditions?

It was a busy start to the month of September for the shared currency after it was hit hard by news that the European Central Bank (ECB) intends to expand its balance sheet by up to a trillion euros taking it back to 2012 levels.

However, expect calmer conditions in the near-term say analysts at RBS:

"After taking definitive action to anchor inflation expectations, expect little new from ECB President Draghi when he speaks this week.
 Still, with the ECB having used nearly all of its publicly discussed monetary policy options (sovereign bond QE being the major exception), further EUR weakness may become a USD story rather than a EUR story."

Concerning the outlook for the euro dollar exchange rate SEB Group tell us there is however the chance for further declines in euro dollar:

"At least one more step lower. Friday was spent digesting the post ECB slump and as long as holding below the mid body point of Thursday’s falling benchmark candle, 1.3047, at least one more should be sought fulfilling the ideal target for wave 3, 1.2905. Thereafter a 1.3047 bounce should be in the cards.

"On a longer term horizon a wave pattern starting 1-2-3 of course is utterly bearish and speaks of losses beyond the 2012 low point, 1.2042."

Weakness Will Resume Confirm Credit Agricole

Credit Agricole are also bearish on the euro going forward:

"ECB Draghi’s speech in Milan could well be the main EUR event this week. Having already fallen nearly 5% from its July peak, any further refinement of his post-announcement comments next week could again see EUR under pressure. Indeed many investors are likely to be motivated to accelerate their rebalancing plans on seemingly greater ECB determination to lift Eurozone competitiveness.

"While having missed last week’s opportunity to re-instigate shorts, we expect weakness to resume swiftly this week and look to sell at current levels."

The Sterling: All Bets Are Off

Don't touch the GBP until the whole Scotland issue is put behind us.

Expect a sharp rally if a No vote is secured on the 18th of September, by contrast a Yes vote could lead to all kinds of trouble for the unit.

"Sterling is the BIG loser, dropping nearly a percent against a variety of currencies when poll suggested that the Scottish referendum vote for independence could pass. This creates a great deal of uncertainty for the local currency and is pushing it lower despite the improved outlook for the UK economy," says Joe Manimbo at Western Union.

Western Union advise that European importers may want to ahead and take advantage of this dip in sterling, because if the referendum is not passed, a sharp upswing for sterling could follow.