FxWirePro: EUR/GBP likely to drop towards 0.62 area with policy divergence

Thanks to upcoming policy easing by European Central Bank (ECB) rates are likely to diverge further in Euro zone from their counterparts globally, especially in UK, where Bank of England (BOE) awaiting the opportune moment to hike interest rates.

Euro is already hovering around multi-year low against Pound, still further downside might be in store for EUR/GBP pair.

While Dollar is still the best currency to hold against Euro, if FED do hike rates in December, there are significant risks associated with Dollar one of which is possibility of large correction after rate hike due to one sided sentiment. Many fund managers feel FED to be not so prominent factor in the market in 2016.

That makes the Pound a little more attractive against Euro. Though Bank of England (BOE) has scaled back its inflation expectations recently, pushing rate hike further into the future. But it is important to distinguish that BOE is quite far from stimulus.

Trade idea 

• Sell Euro against Pound at current rate @0.701 and at bounce back, targeting 0.69, 0.655 and 0.62 with stop loss around 0.75 area. Key resistance is around 0.72.