EUR/GBP: Models Point To A Move Towards 0.96 In 1-3 Months; Can’t Rule A Move To Parity – Nordea

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The euro and British pound have both been under strong pressure. What is the short-term and medium-term outlook for EUR/GBP?

Here is their view, courtesy of eFXdata:

Nordea Research discusses EUR/GBP outlook and flags a scope for further gains towards 0.96 in 1-3 months. 

“The above-mentioned factors led EUR/GBP to peak last week at 0.949 – a level not even seen during recent years of Brexit turmoil. After some stabilisation Friday, however, the EUR/GBP is now trading around 0.92. While it therefore may seem like there is a long way up to 1.00, we would still not rule out that scenario. At least, we do not think we have seen the highs in EUR/GBP yet,” Nordea notes.

“We have constructed a fair value model in which we have included relative QE programmes from the ECB and BoE, longer-term swap rates and Composite PMIs. We assume that i) the announced asset purchases are done linearly through 2020, ii) GBP swap rates are depressed around 20-25 bp more than the corresponding EUR rates, and iii) the UK economy takes a slightly harder hit in the next three months than the euro area.

Our model depicts that EUR/GBP could move to levels around 0.96 in the coming 1-3 months before seeing some stabilisation in H2 2020,” Nordea adds. 

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.