GBP: Still Oversold; Sell EUR/GBP Rallies - Credit Agricole

The GBP stabilised this regardless of weaker data. In particular last week’s weaker than expected services PMI should be taken as an indication of more muted domestic conditions to the detriment of inflation and rate expectations. However, it must be noted too that investors’ rate expectations already fell considerably during the last few weeks on the back of rising Brexit fears.

From that angle the latest development suggests that the currency has reached strongly oversold territory.

As this week’s data, such as industrial production, is unlikely to have any major impact on rate expectations and as Brexit fears are unlikely to rise even further in the short-term, the GBP may remain subject to position squaring related upside risk. All of the above stands in contrast to the EUR, which may suffer on the back of the ECB turning more aggressive next week. Accordingly we favour selling rallies in EUR/GBP.

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