Euro likely to rise against Pound – previous call revised

We had previously suggested to sell Euro against pound based on the fundamentals of divergent monetary policy. Though that theme remains for medium to long term, three consecutive days of Peoples bank of China's (PBoC) Yuan devaluation is likely to have changed the outlook in the near term.

Euro acting as a safe haven currency and benefiting from wider unwinding of Euro based carry trades both in Yuan and other currencies.

Even recent rout in emerging markets, might keep Euro well bid, going ahead.

One will occur just about 40-50 pips loss on the previous call, if booked at today's price.

On 5^th August, Euro produced a very bullish dragonfly Doji against pound in daily chart. Given the fundamental we considered it as interim profit booking signal.

However, yesterday Euro has broken above its down ward channel against Pound and today clearly sustaining above it and taken support around 0.71 area, which is signs of bullishness.

These developments has forced us to reverse call in the short run, though fundamentals remain against it. Kindly note that stop has not been hit yet on the trade, which stands at 0.72.

Trade idea -

• Those who would like to go with the fundamentals might wait it out to go short at better rate.
  
  
• Those who are looking to go with long and above explanation but conservative might wait it out till it breaks above yesterday's high around 0.716. Kindly note 0.716 is a crucial level so waiting may prove wise.
  
  
• Those who are little more aggressive might long at current rate with stop around yesterday's low of 0.708 and 0.703.

Euro is currently trading at 0.713 against Pound.