Continued weakness suggests scope for a larger corrective phase lower

"Continued weakness suggests scope for a larger corrective phase lower"

According to analyst Luc Luyet at MIG Bank the EUR could be set for a deeper correction against the British Pound Sterling (Currency:GBP).

The outlook for the British Pound has improved markedly since the start of August with strong data releases combining with yesterday's Inflation Report to provide upside impetus.

Commenting on the technical outlook for the EUR/GBP Luyet says:

EUR/GBP has continued to weaken after peaking at 0.8770 (01/08/2013). This is now likely the lower high that we had been anticipating, with scope for a medium term return to the 200 day moving average, currently at 0.8436 and then on towards 0.8398 (26/04/2013 low).

Price action seen since the annual high at 0.8815 is deemed to be part and parcel of a larger corrective phase which may eventually retest under the 0.8398 (26/04/2013 low) region.

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Interest rates and the British Pound

Sterling was boosted yesterday when it was announced interest rates would be tied to the jobs market. Only when unemployment falls to 7 pct will the Bank of England consider raising the rate.

Unless inflation spikes.

This is the important bit - inflation is running high and currency markets are betting that the Bank will have to raise rates as early as 2015. A pro-GBP outcome.

"Yesterday’s Inflation Report provided some good volatility in GBP markets, most of it taking sterling higher, as markets decided to bet on an interest rate rise sooner rather than later despite Dr Carney’s protestations," says Jeremy Cook at WorldFirst.

The Euro is Supported by German trade data

Turning to the EUR side of the EUR/GBP equation we note a quite day dominated by some German data.

German trade data balance was the only data release in Europe this morning. At €16.9bn, June figures printed better than consensus (€15.0bn) and higher than in May (€13.6bn, revised €0.5bn higher today).

"The euro has continued its recent strength this morning following stronger than expected German industrial production, although, much like Tuesday’s factory orders number, a lot may be to do with one-off ticket items from the recent Paris air show. The decision to hold Germany’s credit rating at AAA by Fitch with an attached stable outlook also helped euro remain strong," says Cook.