Trade Synopsis: LONG EURGBP
Trade Recommendation: LONG EURGBP (CMP .8390), TP .8490 & SL .8290
Introduction: EURGBP has made a sharp reversal technically from the 0.83 levels & is currently trading at 0.8390 levels. There is bullish MACD signal too along with momentum indicators.
Fundamentally GBP is losing it’s charm of attractive valuation due to high service inflation & slowing growth characteristics. The current uptick in UK gilts at a 23-year high is not going to go away immediately until UK Chancellor Reeves slashes spending to cover the rising costs of payments on government debt.
Most of the problem in the UK is domestic: the resilience of wage growth, service sector prices, and fears the new Labour government’s tax & spending measures could stoke inflation. In summary, suddenly UK assets are not looking cheap, they are looking over valued in terms of growth opportunities.
But instead of outright short GBP, we are recommending long EURGBP as we believe relatively Eurozone looks a better house than UK now considering BOE is constrained from cuts to preserve growth where as ECB is firmly on it’s way to 125 bps more cut in CY25 because it’s inflation profile is far well behaved.
Risks to the view: Any further weakness in German economy than what is already factored in EURUSD current pricing. Or a political turmoil in Eurozone either due to France or Germany.
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