Pound a Buy Against Euro: Westpac

Image © Adobe Images

Strategists at Westpac look for the Euro to fall further against the British Pound.

According to a new strategy note from the bank, it remains prudent to position for further declines in the Euro-Pound exchange rate as the pair looks intent on respecting a well-understood range and fundamental developments align in Sterling's favour.

"We maintain our EUR/GBP short," says a note detailing the strategy that looked to sell the exchange rate at 0.8698. (A Pound to Euro equivalent of buying at approximately 1.15).

Notably, this level forms the topside of a well-formed range in EUR/GBP that has been in place since May:

Above: The well-defined range in EURGBP with Westpac's key levels annotated. Set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.

The premise behind the trade remains intact, according to Westpac in a note released on October 11:

1) the dovish recalibration in BoE rate hike pricing has run its course; and

2) Eurozone peripheral financial stability risks are building as the region barrels toward another unedifying episode around fiscal finances, with Italy and France projecting uncomfortably large deficits as the focus returns to the EU’s deficit rules.

The next significant event risks posed to the Pound-Euro conversion include Bank of England Governor Andrew Bailey who speaks on 13 and 15 October, UK jobs/wages (17 Oct), UK Sep CPI (18 Oct), and Eurozone final September CPI (18 Oct).

The trade targets a move to 0.85, which gives a GBPEUR upside target of approximately 1.1765.