GBP/EUR Recovery Remains on Track, 100 Day M/A Key
The GBP to EUR conversion retains a positive bias despite finding little upside traction in the final week of October?
We believe the GBP is merely consolidating against the EUR following the break-neck +2% witnessed on Thursday the 22nd of October.
The GBP/EUR surged after ECB President Mario Draghi delivered a very dovish press conference following the October ECB policy meeting, signalling a high probability of policy easing in December.
The euro exchange rate complex fell in the region of 2% following what is being interpreted as a promise for further action at the ECB - be it another interest rate cut or an expansion of the 60BN euro/month quantitative easing programme.
The sudden weakness of the single currency is evident in its relationship to sterling, against which it fell by 2.15% last week.
This is notable as it represents sterling's best rebound against the euro since July.
Such strong moves tend to shift momentum - a welcome turn of events for those holding British pounds and looking to buy euros. Momentum has been in the euro's favour since July when the GBP/EUR peaked at 1.44.
"The chart shows that this move is technically significant as it lifted sterling out of its recent trading range (where it has been finding support at around the 1.35 level) and to its highest reading in more than two months," confirms technical analyst Bill McNamara with Charles Stanley, the brokerage.
However, McNamara warns that the strength of the upmove in GBP to EUR has left it looking relatively overbought on a short-term view but the technical outlook remains supportive and there is probably scope for a bit more upside before exhaustion begins to set in.
As we can see the 100 day moving average - the red line in the above illustration - is now playing a role as support. We would expect the upside bias to remain valid as long as the British pound holds above this level.
A break below the 100 day MA invites a decline back to the psychological support zone of 1.38.
Latest Pound/Euro Exchange Rates
  | Live: 1.1459▲ + 0.14%12 Month Best:1.2162 |
*Your Bank's Retail Rate
| 1.1069 - 1.1115 |
**Independent Specialist | 1.1299 - 1.1344 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Sterling suffered a setback against the euro on the 27th of October with the release of Q3 GDP data which came in below analyst forecasts.
While the data saw sterling slip back it is worth pointing out that the UK economy remains robust and the fundamental outlook continues to favour GBP.
BNP Paribas: Stick With Long GBP
BNP Paribas are meanwhile maintaining their pro-GBP bias from a strategic perspective.
Traders at the French bank went into the October ECB meeting with short EURUSD and EURGBP trade recommendations.
"We think positioning has become much more supportive for the rebuilding of EUR shorts," says Vassili Serebriakov with BNP Paribas.
According to BNP Paribas positioning analysis, EUR shorts were largely unwound in Q2-Q3 and EUR positioning has turned the most bullish since 2013.
After the ECB meeting the market is likely to be biased to rebuild short positions, selling into any EUR rallies.
Consequently BNP Paribas are trailing the stops to 1.1360 for EURUSD and 0.7325 for EURGBP locking in a total gain of 1.7%.
BNP We continue to target 1.09 and 0.70, respectively.
Turning this around for those watching the pound to euro conversion, 0.70 equates to 1.4286.
