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19 Sep 2014
EUR/GBP sell on rallies towards 0.8000 – Rabobank
FXStreet (Edinburgh) - Senior Currency Strategist Jane Foley at Rabobank recommends fading rallies to the psychological 0.8000 handle.
Key Quotes
“While relief rallies are this morning simultaneously lifting both sterling and the FTSE 100 index, it is unlikely to be long before the issue of the timing of the first BoE rate hike returns to the fore”.
“Money market rates are currently pointing to April 2015 for the first BoE move. Our preference is May given the coincident timing of the Quarterly Inflation Report in that month”.
“This week has brought a slew of UK economic data releases. Yesterday’s August retail sales data brought a healthy 0.4% m/m rise, which was further endorsement of the improving trend in the sector”.
“However, despite a continuation of disinflation in the CPI index, there was further confirmation that real wages continue to decline and this means that the outlook for growth in consumption demand remains clouded”.
“It has been our view for some time that the BoE is unlikely to hike rates until there is real evidence of a recovery in real earnings”.
“In our view concerns about the lack of growth in the Eurozone’s largest economic make an ‘early’ BoE rate hike even more unlikely. That said, yesterday’s news that there was only moderate demand for the ECB’s TLTRO suggests that this measure may not have the desired outcome”.
“As a result speculation of QE in the Eurozone has been given another lease of life and this should weigh on the EUR crosses. We maintain our target of EUR/GBP 0.77 and retain a preference to sell rallies towards 0.80”.
Key Quotes
“While relief rallies are this morning simultaneously lifting both sterling and the FTSE 100 index, it is unlikely to be long before the issue of the timing of the first BoE rate hike returns to the fore”.
“Money market rates are currently pointing to April 2015 for the first BoE move. Our preference is May given the coincident timing of the Quarterly Inflation Report in that month”.
“This week has brought a slew of UK economic data releases. Yesterday’s August retail sales data brought a healthy 0.4% m/m rise, which was further endorsement of the improving trend in the sector”.
“However, despite a continuation of disinflation in the CPI index, there was further confirmation that real wages continue to decline and this means that the outlook for growth in consumption demand remains clouded”.
“It has been our view for some time that the BoE is unlikely to hike rates until there is real evidence of a recovery in real earnings”.
“In our view concerns about the lack of growth in the Eurozone’s largest economic make an ‘early’ BoE rate hike even more unlikely. That said, yesterday’s news that there was only moderate demand for the ECB’s TLTRO suggests that this measure may not have the desired outcome”.
“As a result speculation of QE in the Eurozone has been given another lease of life and this should weigh on the EUR crosses. We maintain our target of EUR/GBP 0.77 and retain a preference to sell rallies towards 0.80”.