The British Pound continues to post gains against the Euro, and is now seen at its highest levels in the month of June as investors remain cautious ahead of the Summit meeting that will be held by the various members of the Eurozone that is scheduled for later this week. This downside pressure in the Euro suggests that investors are having a hard time believing this meeting will result in a substantive agreement that will bring progress to the debt problems that are being seen in Europe.
Adding to the pressure on the Euro is the latest activity in European bond markets where unsuccessful treasury sales in Italy and Spain have raised borrowing costs for government debt in those countries. These higher costs will be interpreted as problematic for these countries, which are already in vulnerable positions. As a result of this, regional investors are moving into the British Pound as a means for averting potential financial risks.
European Investors Continue to Buy British Pounds
The British Pound is higher by 0.5 percent on the session, now showing a rise to 79.90 pence against the Euro, which is the strongest the currency has been since the end of May of this year. Against the US Dollar, however, the picture is slightly different. Small gains were made on the session, as the GBP/USD rose by 0.4 percent to trade at 1.5640 but this is coming after making declines to 1.5540 during yesterday’s session, which is the lowest level since the middle of June.
This trading activity could easily continue into the EU Summit meeting, which will be held on the 28th and 29th of June. Evidence of political cohesion of plans of progress will bring buying activity back into the Euro but if the result is viewed by analysts as being unproductive, expect the Euro currency to remain under pressure against its major trading partners.
Traders should also remain mindful of the developments that are seen in bond markets, given that 3-month treasuries in Spain are now commanding yields of more than 2.36 percent, much larger than the 0.85 percent yields that were seen previously. 2014 bonds in Italy are now commanding yields of 4.71 percent after its latest auction, which is also a significant rise from the 4.04 percent yields that were trading at the end of May.
The EUR/GBP is caught in a very strong and clearly defined downtrend channel, with prices recently breaking critical long term support in the 0.8060 area. Since this break occurred, momentum traders took over and sent the currency pair below important psychological levels at 80.00 and this turns the bias to negative for the medium term. Because of this, any short term rallies are expected to be sold into, and the first level of resistance can now be seen at 0.8150. First support is now seen 100 points lower at 0.7950, as the pair continues to move in 50 point increments.