Euro Pound Exchange Rate Squeezed Higher, EUR/GBP Heads Towards Resistance at 0.8020

The British pound remains pressured against the euro on global exchange rate markets, however we see a formidable resistance level lies ahead and could put the breaks on the EUR rally.

EUR/GBP has extended gains towards 0.7950 as the pound sterling remains under broad-based pressure.

At the start of the new week we see the euro to pound exchange rate (EUR/GBP) sitting at 0.7993 - very little changed from the previous week's close.

The pound to euro exchange rate is at 1.2511. Considering the rate was at 1.28 at one point this week the scale of the losses becomes apparent.

Please note that the above quote will be subject to a discretionary spread by your bank, it can vary wildly from the market rate. If you are looking to make international payments we suggest being quoted by an independent provider. By tapping the wholesale markets they can offer up to 5% more currency in some instances.

If you missed the week's best rates it is worth remembering that there are ways to automatically take advantage of positive FX moves while avoiding negative moves by ensuring the correct risk controls are in place, learn more.

Forecasting Resistance to Come Into Play

We may be nearing the best region for euro sellers to transact into sterling since mid-October.

As the below image shows the region around 0.8020 has been rejected three times since August:

Markets have absorbed some better news out of the Eurozone and priced a shallower rate-hike profile for the UK - we reckon it will take an eye-opening event to push the euro through the 0.8020 barrier.

With little on the agenda this week we would believe the best gains for the euro are behind us.

Or, Will the Short Squeeze Higher Continue?

According to a recent analysis of the EUR/GBP conducted by Milan Cutkovic at ForexTell says we could see further gains eked out ahead of a retracement:

“The daily close above 0.7920 this week past suggests we could see another test of 0.8030 in the near-term

“Ahead of that, solid resistance at 0.7980, which will likely attract decent selling interest.

“Intraday, it could be worth selling some EUR/GBP around that resistance area, looking for a retracement back to 0.7930.”

Citibank Pulls Out of Short EUR/GBP Trade

As a sign of how problematic the recent weakness has become for some in the markets, we hear from Citibank that they are withdrawing their strategy of selling the euro against the pound sterling.

In a note to clients Citi say:

“We are exiting our short EURGBP position at 0.7848 for no change.

“We originally entered this trade on October 15 at an effective rate of 0.7850 using 20% of capital (it was originally a short EURUSD that we converted to short EURGBP on said date at the effective rate).

“EURGBP has seen little downside follow through and while we remain of the view that EURGBP is likely to head lower in the long-term, at this point in time it is difficult to see a catalyst for a move in the near-term and we prefer to free up some capital.”

Euro Exchange Rates: Latest News

"Some may need to squint to see it but the euro zone and its two biggest members returned to growth last quarter, tempering for now recession worries. Third quarter growth was largely in line with markets’ anemic expectations, keeping area monetary policy skewed super accommodative, a stance that diverges from the tightening path the Fed appears on," notes Joe Manimbo at Western Union.

The euro got a brief boost after data confirmed Germany and France grew last quarter, showing how some had bet on further contraction which would’ve met the text book definition of recession, two straight quarters in the red.

Meaningful growth is expected to elude the euro zone for a while which risks reinforcing the euro’s downtrend against the greenback.

Pound Exchange Rates: Latest news

Sterling fell to new 14-month lows, repercussions from this week’s game-changing subdued inflation survey from the Bank of England (BOE) that launched deeper into next year the timing of a possible rate hike.

"The BOE believes inflation, running at a five-year low of 1.2%, is yet to bottom and may do so in the months ahead below 1%. The BOE aims for 2% inflation so the longer it takes for prices to recover to healthier levels, the more leeway it would give bankers to keep rates low to spur the economy," says Manimbo.

Inflation will be a dominate theme for the pound next week when the CPI comes due on Tuesday and is forecast to show prices edged up to 1.3% for October. Wednesday (Nov 19) brings the minutes from this month’s BOE meeting. So lots of risk and uncertainty tied to the pound next week.

Dean Popplewell at MarketPulse says he is not surprised to see investors shunning the pound:

“The pound has hit a multiyear low and threatens to breakthrough £1.5650 with some conviction. It comes as no surprise to see investors shunning the sterling altogether after the BoE slashed growth and inflation forecasts in the QIR.

“The governor now expects the U.K. economy to grow +2.9% next year, weaker than the +3.1% that he and his fellow policymakers were predicting only three months ago.

They also expect to see inflation dip below the psychological 1% handle within the next six months. Slashing growth forecasts has allowed fixed-income traders to dramatically trim their expectations for an interest rate hike.

“Previously, the market was gunning for a midyear hike in 2015. Now it has to fall in line with U.K. policymakers who forecast the first U.K rate rise to occur in the third quarter, 2015. At the moment, there is little incentive to want to own GBP, nevertheless, do not be surprised if the market does happen to see better levels to “short” the pound. The lack of market participation has a habit of achieving this, especially when close to any holiday period.”

Dollar Powers Ahead

The currency to beat remains the USD.

“The U.S. consumer is back and so, too, are fresh highs for the trade-weighted greenback which rose to new June 2010 peaks. Retail sales just eclipsed forecasts with a 0.3% gain in October after falling 0.3% in September,” notes Manimbo.

The less volatile core number fared even better, rising 0.5%.

“The solid reading bodes well for fourth quarter growth, keeping the Fed on course to raise borrowing rates next year. Sinking oil prices are expected to keep a tailwind on consumer spending over coming months. The higher quality of U.S. data compared to Europe should help keep the dollar well supported,” says Manimbo.