Euro/Sterling approaching a crossroads
EURGBP is currently trading at a shade over 0.8700, within touching distance of the support around 0.8680, a level that hasn’t been properly tested since it broke through on the way up in June of last year. This must at least be partially attributed to the success of the EU-sceptic parties in the weekend’s Hungarian elections, and it’s natural for traders to look at Sterling as a likely beneficiary as the popularity of the EU project continues to lose favour with ordinary voters. If we have learned one thing about Brussels though, it is that they will simply brush this aside as an irrelevance, as they do with most votes that fail to endorse their grandiose schemes. However if we have learned one thing about the FX market it’s that the true value of a currency is decided there, and not by politicians, however much they might wish it wasn’t so. Overall, while there is uncertainty over both the Brexit & EU projects, the outcome is likely dependent on which of the two economies has better long-term prospects.By any measure, that has to be Sterling, so while the break lower for EURGBP might not happen today, we believe that it is inevitable.