Pound Forecast to Open Lower vs Euro on Monday as Leave Surge to Massive Lead Ahead of EUref
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The British pound is in danger of slipping below a major support level against the euro at the start of the new week as the Leave group take a commanding lead over Remain in the latest UOB International polling series.
The pound to euro exchange rate is forecast to commence the new week in the red after a weekend poll confirms the Leave campaign is at a massive advantage just days ahead of the crucial EU vote.
An ORB International poll for the Independent shows a 10 point lead for Leave who command a 55% to 45% advantage over Remain.
"The online poll of 2052 respondes, conducted from June 8th to 9th, shows a swing to brexit with just 12 days of the campaign remaining," report ORB International.
The interesting thing is that over 80% of the respondents acknowledged there would be a risk to leaving, despite their apparent intention to do so.
There is clearly some underlying issue amongst the public with regards to the EU that the Remain campaign are not grasping.
Market Sell-Off Undermines Sterling
The pound entered the weekend notably lower against most of its counterparts as it tracked a broad-based sell-off on global markets.
Stock markets are deep in the red as we head towards the London close with the FTSE 100 seen an eye-watering 1.85% lower on the day.
The declines accelerated as the American markets opened with the Dow taking a 1% plunge on the bell.
The British pound - a risk play - has fallen alongside. Sentiment towards sterling is negative at present and therefore it will react to bouts of broader investor negativity.
Note that the German DAX is over 2.3% lower, the pound vs euro rate has a history of tracking big moves in the DAX and today is no exception.
“Well, from a bad start to a worse lunchtime to a truly awful afternoon the global markets lost the plot this Friday, with the European indices plunging into the red in a way reminiscent of the grim scenes back in February,” says Connor Campbell, an analyst with Spreadex.
I have scoured my sources to find a reason for the declines. Unfortunately there is no one definitive source on which we can pin the blame.
Mike van Dulken, Head of Research at Accendo Markets, says the declines are derived from Asian bourses following their stateside peers south as negative bond yields become more prevalent, calling into question global monetary stimulus efforts while growth and inflation struggle to recover post-crisis.
“And with event-risk related to next week's Fed policy update and a too-close-to-call UK referendum on EU membership the week after, investors are continuing to temper their appetite for risk assets into the week-end. Apprehension likely stems from what bearing China data (Industrial Production, Retail Sales, Investment) will have on sentiment come Monday morning as well as a US dollar bounce hurting the commodity space, taking oil from its 2016 recovery highs,” says van Dulken.
There has also been some talk of the retreat in oil prices as being a source for the declines - the source of this being the rise in the dollar. But then you hear that the dollar is rising because stocks are falling, taking us back to square one!
Certainly, there is also the hanging uncertainty surrounding the EU referendum at the end of the month to also take into account.
Beware the Coiling Spring
With a mere 12 days until the UK heads to the polls some will find the resillience in the British pound as unexpected, but, we would continue to warn against complacency.
Sterling rose off a low at 1.2648 recorded earlier in the week to hit 1.2793 on Friday.
present and those with immediate payment decisions should be aware that any weakness towards 1.2720 GBP/EUR appears to pique the interest of buyers.
Where sterling ends this week will be instructive as to whether support will hold.
With no major news flow coming out of the referendum debate, and polls essentially split at 50/50, markets are left gazing at the charts and making decisions accordingly and that is why we are quite confident in reading a small upside bias in the pair at present.
However, with the EU referendum now 12 days away volatility in the underlying options market remains at levels not seen the financial crisis. Tensions are bubbling under the surace and will continue to do so, but they are yet to really be reflected in the spot market.
The spot market is what those readers with impending international payments are familiar with. (For the latest retail rates that are available please see here - a spread is extracted from spot by your provider and the size is at their discretion - remember you can get up to 5% more FX by quoting with an independent specialist).
Those with impending euro payments will note the exchange rate has failed to fall below the 1.2720 level for some time now confirming it is a solid point of support that has been in place for much of 2016.
There is clearly a good deal of buying interest here.
Even if it were to give way over coming days we would suggest the sell-off won’t really gain traction as there remains even more buying interest at 1.2626.
Only when this level gives way would we expect the year’s lows at 1.2319 to come into view again.
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