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2015

Euro Research Report

Published: Friday 31 July 2015

Once again this month headlines were dominated with the possibility of a ‘Grexit’ from the European Union. The Euro failed to strengthen even after the Greek Parliament approved the bailout bill. The Sterling Euro exchange rate made fresh highs, breaking the important resistance level of 1.4280 - which has held the cross at bay for some time.  This was a sign that the market focus had already shifted towards diverging monetary policy between the U.K and the Eurozone. Just as quickly as we reached the new 8 year high however traders noted that the exchange rate was already stretched and the sheer speed of the move was unsustainable and so begun take profit on their positions  - This was purely a technical retracement rather than fundamental. Sterling Euro rate looked well supported on the downside and remained within the upward channel finding support at the 1.40 level before once again beginning its journey higher.

The danger of a European Union breakup has been averted for now, however Greece’s rescue package was not without its critics. The IMF which forms part of the Trioka were also vocal to their other creditors ; warning that Greece would need a full moratorium on debt payments for 30 years and perhaps even long-term subsidies to claw its way out of depression. Greek public debt will spiral to 200pc of GDP over the next two years without any debt relief - a solution that many view as only delaying the inevitable. 
Throughout this whole ordeal Eurozone consumer confidence has suffered due to consumers' growing pessimism about their future general economic situation and future employment expectations.  Inflation in the euro zone weakened also on a monthly basis, showing the region still remains vulnerable to deflationary pressures.

After a sluggish first quarter the UK's economic growth rebounded to 0.7 per cent in the second quarter. Britain remains on course to grow at 2.6% in 2015 allowing it to head the G7 growth league for the second year in a row. This pickup was once again predominately driven by the powerhouse services sector which contributes a large portion to the UKs GDP. The service sector recovered from its steepest slowdown in nearly four years in May as it benefited from higher earnings and low inflation. The industrial sector also posted a strong recovery, as the extraction industry in the North Sea came back to life after months of ultra-low oil prices. The one sector which has suffered in 2015 is the Manufacturing Sector as factories continue to grapple with weak exports, hampered by the strength of the Pound relative to our largest exporting market the Euro.

Nevertheless, an overall increasingly buoyant economy could force the Bank of England to bring forward its planned tightening of monetary policy. Governor Carney has signalled recently that the time is growing to nearer to raising rates from the record low- in order to keep medium-term inflation under control. 

For EUR Buyers

Sterling Euro is still within an upward channel - well supported above short term and long term moving averages. An uptrend is characterised by higher highs and higher lows and early this month the exchange rate had a combination of making fresh highs toward the top of this channel and higher lows.  Now that we have had a healthy retracement, momentum indicators are back from the brink of being overbought so look set to continue the assault higher to test previous highs with scope to make fresh highs.  Depending on your time frame leave stops below the bottom of the channel, and look to target the top.

For EUR Sellers

Unfortunately looks the trend is not your friend in this case and a move higher is likely however we may see some relief in the short as we are moving towards the psychological level of 70 pence which translates to 1.4285, this has been broken previously so isn’t as important as it once was but may offer some resistance in the short term. Look to leave a stop above the level and target above 1.40.