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19 May 2014
Sell EUR/GBP circa 0.82 targeting 0.7800 - SocGen
FXStreet (Bali) - According to Kit Juckes, Head of FX Strategy Team at Societe Generale, selling EUR/GBP is a good medium-term strategy on the ECB/BoE policy divergence.
Key Quotes
"As the BOE readies to tighten policy, albeit gingerly, in early 2015, the ECB is preparing for further easing in less than a month. The growing policy divergence between the euro area and the UK could not be more glaring, and it is being reflected in the deviating forward rates expectations."
"Moreover, the inflation differential between the single currency area and the UK is also substantial. While UK CPI inflation has been falling in recent months, at 1.6% it remains significantly above that of the euro area at 0.7%."
"Policy divergence is a fundamental factor pulling EUR/GBP towards its long-term fair value in coming months. We see EUR/GBP falling to 0.78 by the end of this year, which coincides with our current point estimate of its long-term fair value."
"A wider array of long-term valuation models provides an average fair value estimate of 0.72 for EUR/GBP. Thus aim to sell EUR/GBP towards 0.8200, with a stop at 0.8270, and targeting 0.7800."
Key Quotes
"As the BOE readies to tighten policy, albeit gingerly, in early 2015, the ECB is preparing for further easing in less than a month. The growing policy divergence between the euro area and the UK could not be more glaring, and it is being reflected in the deviating forward rates expectations."
"Moreover, the inflation differential between the single currency area and the UK is also substantial. While UK CPI inflation has been falling in recent months, at 1.6% it remains significantly above that of the euro area at 0.7%."
"Policy divergence is a fundamental factor pulling EUR/GBP towards its long-term fair value in coming months. We see EUR/GBP falling to 0.78 by the end of this year, which coincides with our current point estimate of its long-term fair value."
"A wider array of long-term valuation models provides an average fair value estimate of 0.72 for EUR/GBP. Thus aim to sell EUR/GBP towards 0.8200, with a stop at 0.8270, and targeting 0.7800."