EUR/GBP looks oversold, BoE’s May hike priced in – Danske Bank

Analyst Aila Mihr assessed the recent price action around the Sterling and factored in the upcoming BoE interest rate decision.

Key Quotes

“Momentum in the GBP rally has eased and GBP/USD has dropped back to 1.43 after the cross reached a new post Brexit high at 1.4377 yesterday. We expect today’s UK CPI data to support the case for a BoE rate hike in May, but we do not expect the data to provide renewed support to GBP as a BoE rate hike is widely expected already”.

“As such, EUR/GBP looks slightly oversold according to technical measures such as RSI, but a BoE rate hike in May would be likely to continue to underpin GBP and keep EUR/GBP close to current levels in the near term”.

“We target 0.8650 in 1M and 0.86 in 3M. Note, however, that non-commercial positioning is very long GBP suggesting a high correction risk in GBP crosses. Longer term, we remain bearish on EUR/GBP and we have lowered our 6M and 12M forecasts slightly, targeting EUR/GBP at 0.84 in 6M (0.86 previously) and 0.83 in 12M (0.84)”.