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Pound sterling is vulnerable to a pullback against the euro as falling energy prices support the single currency and investors hunt for value.
Pound sterling's rally against the euro is losing momentum as falling energy prices lend support to the single currency.
The pound is softer today: the pound-to-euro exchange rate is at 1.1967, down 0.08% on the day.
GBP/EUR's 14-day relative strength index (RSI), a momentum gauge on which readings above 70 flag overbought conditions, has fallen to 67.88 to exit overbought territory after holding above 70 since early October.
What does an exit from overbought denote? Buyers have stopped chasing the rally, which tends to precede consolidation or a pullback while October's gains are digested.
Pound Sterling Live's Week Ahead Forecast looked for consolidation beneath 1.20 this week, a level GBP/EUR has yet to close above.
GBP/EUR's 21-day moving average, at 1.1935, is the first support beneath the market.
The euro is drawing support from the energy market: Brent crude fell 6.1% on Monday to $92.31 a barrel, its lowest since August, after President Trump said the war with Iran is militarily "effectively over".
Dutch TTF gas, the European wholesale benchmark, is threatening to break beneath its 50-day moving average as hopes of a diplomatic end to the conflict grow.
Cheaper gas eases the strain on the Eurozone's energy-importing economy and supports the euro.
The pound's impressive October rally meanwhile leaves the euro looking cheap, and buying the euro against the pound offers investors value.
Crédit Agricole's FAST FX model, its weekly systematic measure of short-term currency fair value, booked a profit on last week's long euro positions and reopened a long EUR/GBP trade on Monday.
Valentin Marinov and David Forrester at Crédit Agricole say the model still sees the euro as undervalued against the pound, with EUR/GBP more than 1.5 standard deviations below fair value.
The model's fair value, which is also the trade's take-profit, has risen to 0.8496 (GBP/EUR 1.1770) from 0.8469 (GBP/EUR 1.1808) on a wider gap between Eurozone and UK bond yields.
Crédit Agricole's separate positioning model also flags the pound as overbought against the G10 currencies.
However, MUFG targets EUR/GBP at 0.83 (GBP/EUR 1.2048), "the outperformance of the pound over the past month has been encouraged by building optimism over stronger growth in UK and for the BoE to tighten policy in response to upside inflation risks," says the Japanese bank.
The pound would be exposed to a deeper setback towards 1.1750 should GBP/EUR close beneath its 21-day average.
