EUR/GBP: risks are now more balanced - Danske Bank

Analysts from Danske Bank, consider that EUR/GBP should be capped around 0.88 if the Bank of England does not start a hiking cycle. 

Key Quotes: 

“With the prospect of a BoE rate hiking cycle materialising earlier than we previously foresaw, the GBP has been brought back to life. In an environment where the EUR uptick is losing steam and the market remains stretched on GBP shorts, we have to admit that risks in EUR/GBP are now more balanced than what we had laid out (previously saw risks tilted to the upside for the cross near term).”

“Our preposition remains that EUR/GBP will have a hard time breaking significantly lower from here as Brexit uncertainty is set to be a subjugate for the GBP for an extended period of time.”

“Near term, the cross should be capped around the 0.88 level (which prevailed before the summer uptick) but, further out, if the BoE initiates a hiking cycle, the adjustment towards fundamentals – our Brexit-corrected Medium-Term Valuation (MEVA) estimate for the cross is around 0.83 – could take place faster than our current forecasts (0.88 in 12M) project.”