Brexit Talks key to GBP/EUR Levels (Daniel Johnson)

GBP/EUR- 1.15 seems to be a Resistance Point

GBP/EUR has been fluctuating between 1.12-1.15 for some time. The absolute peak has been just above 1.15 and has only been available for small windows. It soon retracts which could be attributed to profit taking.

One of the key factors on GBP/EUR at present is Brexit Negotiations. The uncertainty surrounding talks is keeping Sterling anchored below 1.15. If we have further clarity on how talks are progressing expect the pound to strengthen. There has been good news of late with both Dutch and Spanish finance miniters saying they would like a close relationship with the UK after Brexit and are forthcoming in regards to getting a deal in place. Angela Merkel, the German Chancellor made similar comments and as Germany is the engine room of the EU this caused substantial Euro strength.

Freedom of movement of people seems to be the sticking point in current talks, which is obviously a problem with the UK as one of the main reasons for leaving the EU was to have immigration control. I feel this decision will be key to Brexit talks. If freedom of movement of people is agreed by the UK I would expect GBP/EUR to breach 1.15 as trade talks can then progress.

QE could continue past September Target

Mario Draghi, the President of the European Central Bank has declared that the current Quantitative Easing (QE) program could continue past it’s September completion date. Despite record growth in the bloc in 2017 inflation is struggling and Draghi is reluctant to change monetary policy due to this. He has stated that inflation will move natural towards the 2% target, but I am not so convinced.

The need to continue QE shows a lack of confidence in the economy, although we are seeing record highs against the USD, this is more due to Dollar weakness than Euro strength. I do not think the Euro will make significant gains in Sterling unless there is a major hindrance in Brexit talks.

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