Morten Helt, Senior Analyst at Danske Bank, believes the European cross is poised for a drop to the 0.83 area in the long term.
Key Quotes
“Brexit negotiations are now entering a critical phase and we expect EUR/GBP to remain very volatile and sensitive to Brexit news in coming months. We target 0.89 in 1-3M, with risks skewed to the upside in the very near term ahead of the annual UK Conservative Party congress (30 Sept-3 Oct), which in our view is an important hurdle and potential source of volatility, before the final Brexit negotiations”.
“As such, a stretched short speculative GBP positioning and fairly neutral UK interest rates should help to curb EUR/GBP upside potential. However, Brexit will be key driver and stretched positioning is not an obstacle for a significant break higher in EUR/GBP if the likelihood of a ‘no deal’ scenario increases”.
“Longer term, we still expect EUR/GBP to eventually trade lower driven by Brexit clarifications and fundamental valuations. We target EUR/GBP at 0.84 in 6M and 0.83 in 12M”.
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