The Euro to Pound Exchange Rate a 'Buy' say Credit Suisse, Danske Bank

• Euro to Pound rate today (14-3-17): 0.8752
• Pound to Euro rate today: 1.1426

Strategists at investment bank Credit Suisse recommend buying the Euro while selling Sterling in anticipation of further weakness in the latter.

Analyst Bhaveer Shah justifies the buy on EUR/GBP on the ever-uncertain political outlook facing the UK:

“Markets may also see Brexit and Scotland as intertwined rather than isolated events, in the sense that a divided UK could increase the risk of Brexit being a more disorderly or distracting process than is currently priced. In a week when PM May is also unlikely to sway from what seems like a ‘hard’ Brexit strategy, markets could begin to price in the risk of a much more unpredictable year for UK politics than is currently priced.”

The call comes as Scottish First Minister has said she would seek a second referendum on Scottish independence in late-2018/early-2019 while the Brexit Bill has sailed through parliament unammended confirming the UK can begin the process of leaving the EU in March.

From the Euro's perspective, Shah argues the EUR could stay supported so long as ECB speeches today do not condone the market’s hawkish interpretations last week.

“Such a backdrop could potentially mean EURGBP is not under any hawkish turn from the Fed this week, unlike the cross’s typical behaviour,” says Shah.

Also forecasting a gain in EUR/GBP are Danske Bank, but they cite the outcome of the meeting of the Bank of England (BOE) on Thursday.

Danske foresee no-change in monetary policy despite a recent upshot in inflation.

"We expect BoE to maintain the Bank Rate at 0.25%, while leaving the targets for the stock of government bond purchases (APF) and the stock of corporate bond purchases (CBPS) unchanged at GBP435bn and GBP10bn, respectively. We do not expect any changes to the Term Funding Scheme (TFS) either,” say Danske in a client briefing seen by Pound Sterling Live. 

In addition, Danske still expects the BoE to remain on hold for the next 12 months.

EUR/GBP has already reached the Bank’s official 1-3M target at 0.87, and they are currently reviewing their forecast.

"We still see risks skewed to the upside for EUR/GBP in the coming months ahead of and after the triggering of Article 50," say Danske.

Their outlook chimes with a forecast from economic advisory service Capital Economics who see more pressure on the BOE to keep interest rates low and monetary policy ‘easy’ to make up for the Chancellor’s relatively prudent Spring budget.

The Euro also looks set to benefit from a reduction in political risk if the Dutch elections result in the anti-Euro PVV party failing to gain an overall majority, as now looks probable, given their share of the vote in polls has fallen to 22% from 35% in recent weeks.

Nevertheless, EUR/GBP turned down at the start of the week, falling from an opening rate of 0.8783 to 0.8713 at the time of writing, and is showing the first signs of weakness so bulls should wait for sign the uptrend is resuming before getting long.

“First real sign of weakness overnight, with the cross getting close to the top of its 0.8300/0.8250 to 0.8850/0.8900 range. We are therefore focussed on support at 0.8710-0.8665, as a breakdown through there would suggest a lower high within the range has developed,” say Lloyds Bank Commercial Banking in a note seen by Pound Sterling Live.  

Longer term, Lloyds are bullish: “we have been viewing the declines from the October highs as corrective, as long as the 0.8300-0.8250 region holds. A breakdown through there would suggest the October highs were more significant. We are monitoring current price action in this regard.”

Signs of short-term exhaustion are also noted by Commerzbank’s Karen Jones who notes how the pair has reached a TD perfected on the daily chart and TD Countdown 13 on the hourly.

TD indicators were developed by analyst Tom Demark and they measure trend continuation or – as in this case on the hourly exhaustion.

FX analyst Yann Quelenn of Swissquote is unequivocally bullish stating that:

“EUR/GBP is pushing higher. Strong resistance given at 0.8854 (15/01/2017 high) is at stake. We rule out further weakness towards supports given at 0.8450 (03/01/2016 low) and at 0.8304 (05/12/2016). Expected to further strengthen.”