-- Neal Kimberley is an FX market analyst for Reuters. The
opinions expressed are his own --
By Neal Kimberley
LONDON, Aug 11 European Central Bank head Mario
Draghi's words last week and what Bank of England chief Mark
Carney is likely to leave unsaid on Wednesday may combine to
push the euro lower against sterling in the coming days.
"The fundamentals for a weaker exchange rate are today much
better than they were two or three months ago," Draghi said on
Thursday, referring to the external value of the euro.
"ECB interest rates will remain at the current level for an
extended period of time," he said after the ECB's latest policy
meeting. That current level is a record low refinancing rate of
0.15 percent and the minus 0.1 percent rate on bank overnight
Carney, due to present the BoE's quarterly inflation report
on Wednesday is expected to emphasise that UK benchmark rates
will increase gradually without saying when.
He doesn't have to. The direction of UK rates is not in
question, only the timing - a stark contrast to the ECB's
The clear implication is that the pound, which rose more
than 5 percent versus the euro between the beginning of the year
and July 23 but has since given back some of those gains, is set
to recapture some of the lost ground.
The euro may have room to slip back to at least 78.71 pence,
July's low versus sterling.
Chartists might also conclude the upside for the euro
against sterling is limited.
The pair may struggle to rise through the 55-day moving
average, currently 79.88 pence, and the base of the daily
ichimoku cloud, now 80.05 pence, both just above Monday's
opening price of 79.86 pence.
And if chartists conclude the euro cannot rise versus
sterling, then it is likely to fall as traders test to see if
there is room on the downside in the exchange rate.
Positioning, or rather the perceived lack of it in the
euro/sterling exchange rate, might also suggest there is room
for the pound to appreciate against the single currency.
Admittedly, positioning seems still to be skewed towards
being short euros against the dollar, judging by data from the
Commodity Futures Trading Commission (CFTC) released on Friday.
That showed euro shorts versus the dollar
totalled 128,747 contracts, the largest net euro short position
against the greenback for two years.
Yet the same data showed that traders had cut back their
long sterling position versus the dollar to a net long of 12,121
contracts, down from 24,910 the previous week.
That suggests the short euro versus the pound exposure is
much less crowded than euro versus the dollar. Apparently, room
may be left to buy sterling anew against the euro.
(Editing by Larry King)