The outlook for the pound to euro exchange rate conversion is positive in mid-month trade but any hopes for an advance to 1.50 depend on the breaking of a significant band of resistance.
The euro’s May-June rally against the pound sterling stalled where we expected it to ensuring GBP-EUR has carved out a well defined range lying between 1.4280 to the topside and 1.33 at the bottom.
Technical analysts would say that GBP-EUR settling in this zone is no coincidence as the 61.8% retracement of the 2000/2008 decline in the exchange rate lies right in the middle of this range and very close to prevailing spot rates at 1.38.
There is a band of congestion support between 1.49/1.38 dating back to 2003/2006 which is also clearly providing resistance to further strength in the cross.
For now, a sideways range is preferred, but should strong/weak data prompt a move outside of the range some new targets come into sight.
A break below 1.34 implies a collapse towards 1.25.
Should GBP-EUR move above 1.4286 then we should see the pound to euro exchange rate conversion push towards 1.5151 in the medium-term and in the process achieve the fundamental forecasts expected by a host of institutional analysts.
After trading down to a low of 1.3529 last Tuesday sterling began to rally vs. the euro, to the extent that it ended the week with a gain of 0.5%.
"From a technical point of view the salient point here is that the UK currency reacted positively to its short-term uptrend and although further choppy trade looks possible in the near-term this bounce from support implies that sterling remains well-supported above 1.35," suggests Bill McNamara at Charles Stanley.
Be aware: Quotes in this piece reference the inter-bank wholesale market. You will be offered a lower rate by your bank who will charge a spread at discretion. An independent provider will however seek to offer you a rate closer to the market, this can result in up to 5% more FX being delivered on your international payments. Find out more.
Is the Euro v Dollar About to Take Another Dive?
Turning to the larger Euro Dollar exchange rate signs are growing that a fall is on the cards.
The second quarter so far has been all about consolidation for EURUSD; price has stabilised, “but there is scant sign that the market has found a base from which the EUR can rally significantly in the next few months,” notes technical analyst Shaun Osborne from TD Securities.
Rather, the analyst believes what we are seeing is a signal from the daily and weekly charts that the EUR is only steadying before another, potentially powerful leg lower.
“The daily chart suggests spot is carving out a bear wedge or even a bearish Head & Shoulder continuation signal (neckline trigger at 1.0933). A break lower implies the risk of a swift drop to just above par in the next 3-6 months,” says Osborne.
From here, only gains above 1.1465 remove near-term downside risks (but would still leave the EUR exposed on a longer-term view).
TD remain bearish and from a strategic standpoint are looking to fade short-term EUR gains.
