Euro Tech Targets: Stone’s Throw Away from of 0.90 vs Pound Sterling and 1.1700 vs the Dollar

• Euro to Pound Sterling exchange rate = 0.8950
• Euro to Dollar exchange rate = 1.1643

Versus the Pound, the Euro is now within spitting distance of the great 0.9000 barrier – a key psychological level that could well determine future direction.

Against the Dollar it is closing in to its next target at 1.1700.

The latest leg higher occurred after the European Central Bank (ECB) governor Mario Draghi failed to ‘criticise’ the strengthening Euro in the press conference after the latest ECB meeting.

It was expected he might express concern about the rising Euro since it will start to work against improvements in the region’s economy if it stifles booming exports.

"It's true there have been movements in bond price, asset price, exchange rates and so on," he said at the post-meeting press conference, "but financing conditions remain supportive,” he added - batting away a question about the risk from rising exchange rates and borrowing costs from a reporter in the audience.

Taken in the round, however, the ECB meeting was not as positive as markets had expected.

There had been an expectation that the ECB would adjust the language of their statement to reflect a more optimistic outlook for the region – however that did not happen.

Can the Euro's Push Higher Last?

Nevertheless, despite this, the Euro continued to push higher – will this last?

The ECB may not have been ‘gung ho’ as markets had wished, but they still said they would be planning to tighten policy in 2018, just a little later than had previously been expected.

Société Générale’s, chief strategist Kit Juckes seems to think the Euro has further to go, pointing out that the backdrop is conducive for more Euro appreciation.

He says that the Euro is likely to continue higher because it is currently the most undervalued of the G10.

“If Mario Draghi was hoping that by pouring cold water on expectations of a move to taper ECB asset purchases, he would stop the euro's advance, he failed. Regardless of the precise timing of the next move, the currency will not remain significantly undervalued as long as the market believes it's just a matter of time before policy normalisation occurs,” said the SocGen analyst.

1.1714 Now In Focus

For the EUR/USD pair - currently trading in the mid-1.16s - the 1.1714 August highs is now in focus.

“We look for the EUR/USD 1.1714 level to be tested. Yet, a sustainable break above 1.2000 is unlikely for now,” said ING’s Petr Krpata.  

Blackwell Global’s Stephen Knight mentions the same level, in his analysis:

“Right now 1.1714 looks relatively achievable, as does the 1.18 handle. Subsequently, it is entirely conceivable that we might yet see the venerable Euro Dollar trading above 1.20 if the ECB continues to follow through and doesn’t seek to jawbone the market,” said Knight.

ING sees the pair struggling above the 1.2000 handle, however.

“At this point, we see a sustainable break above the 1.2000 level as unlikely, particularly after Draghi’s comments on unwanted tightening of EZ financial conditions that would jeopardize the inflation outlook,” Said Krpata.

ING would only expect EUR/USD to sustainably reach 1.20 level in mid-2018 when the ECB have completely removed QE, and the market starts pricing in higher interest rates, deposit rates and a more ‘normal’ monetary policy milieu.

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EUR/GBP 0.9000, Almost There

For the Euro to Sterling the next major target is 0.9000.

According to Karen Jones at Commerzbank, who is neutral to bullish the pair, the top of a channel at 0.8868 was presenting a ceiling to further upside from the pair, however, this appears to have now been broken yielding new upside possibilities to 0.9059.

“The market is probing the top of the channel at 0.8868. This remains the break point to 0.8987 then 0.9059, the 61.8% retracement and the highs from mid October 2016,” said Jones.