Before the GFC, EUR/GBP spent years trading between .65 and .70. Obviously much has changed since then but I cannot see a good reason for the EUR, with all its Sovereign debt woes, to still be trading 20% higher against the GBP. In my opinion it’s only a matter of time before the cross falls to .75 at least.
What does that mean for the components? If EUR/USD falls to 1.20 and EUR/GBP falls to .75, then the cable will be trading at 1.60. If EUR/USD rises to 1.40 and the cross falls to .70, then the cable will be trading at 2.00. That’s why I’m sooo bullish on cable for the rest of this year.
