British Pound Outlook Against Euro, US Dollar and Australian Dollar for the Week Ahead

• The pound to euro's downtrend stalls, test of 1.30 is first major test
• Pound to dollar rate softer on Monday but too early to call end of recovery
• The 1.90 target against the Australian dollar looms

The uncertainty surrounding the 2016 EU referendum has been costly for the UK currency but there are signs of improvement in sentiment towards the UK currency.

Overshadowed by Brexit, economic news does not play the part in determining movement in the pound that it once did, although we believe could become more accentuated in the week ahead.

We saw through the start of March that the pound largely ignored the PMI series and advanced, despite overwhelming signs that UK economic growth is slowing somewhat.

However, if markets believe they have absorbed Brexit risks then data will once again start moving the currency.

Industrial Production is to be released on on Wednesday 9th, markets are forecasting a reading of 0.5% month-on-month.

Manufacturing Production is forecast to have risen to 0.2%, a recovery from the previous reading of -0.2%.

Any misses here will certainly cap the pound but upside surprises will likely have a more pronounced positive impact owing to how negatively aligned against the pound markets are.

On Friday the 11th the Trade Balance is schedule for publication, with the visible Trade Balance showing a -2.709bn deficit in January.

Latest Pound/Euro Exchange Rates

	Live: 1.1391▼ -0.13% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1004 - 1.1049
**Independent Specialist	1.1232 - 1.1277 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The Downtrend in the Pound to Euro Exchange Rate Pauses

The medium-term down-trend has paused at support from the 50-month moving average and the 200-week moving average at 1.2620 and 1.2640 respectively.

Moving Averages are, as hinted at in the name, the average price traded at over the timeframe in question and they often provide very solid support or resistance to price moves, which means trends are often reversed at MA’s.

The pair then bounced and clearly broken out of its down-sloping channel, eventually reaching its target generated by the breakout from the channel at 1.2962 and then the key 1.3000 psychological level.

It has now pulled back in a small three-wave a-b-c correction, visible on the 4-hr chart, and found support at a minor trend-line.

There is a possibility the pair could resume its mini-up-trend, however that would require a break above the current 1.3002 highs.

It would also require a break above the 50-day MA at 1.3010.

Therefore, a move above the 1.3100 level would, probably provide stronger confirmation of a continuation up to the next target at the R1 monthly pivot level at 1.3184.

Pivot Levels are used by professional traders to indicate points at which prices will encounter strong support or resistance – much like MA’s.

A resumption of the down-trend is also possible although the move down from the head and shoulders topping pattern on the weekly chart, reached its target and the big moving averages in the 1.26s are providing solid support.

A head and shoulders pattern forms at the end of an up-trend when the pair moves up and peaks, pulls back down and then movies up again and peaks at a higher level, before once gain pulling back down to roughly the same level as the previous trough and then moving higher to peak at the same level as the first peak.

This provides the three peaks which form the shoulder and the head.

After that prices are expected to move lower very rapidly, with confirmation coming from a break below the trough lows – also known as the neckline -and a minimum target at the 61.8% extrapolation of the head lower.  

Pound to Dollar Exchange Rate Outlook: A Reversal?

There are tentative signs of a reversal in GBP/USD, although it is too early to say for certain.

Last week’s strong performance by sterling means it has formed a two-bar reversal pattern on the weekly chart.

Despite not being a ‘5-star’ grade set-up because the volume is muted and the bars are not quite the same length, it is nevertheless probably a 4-star pattern, given its placement at the end of a protracted down-trend.

We are also within a support zone supplied by major lows on both 2008 and 2010 lending further credence to a potential reversal unfolding.

A break above the 1.4534 highs would provide confirmation of a reversal, with an initial target at a major trend-line at 1.4900.  

At the start of the week we are seeing the GBP to USD exchange rate come under pressure as the currency hits technical resistance levels.

"The short-term rally we have been witnessing from the 29th February lows at 1.3835 is reaching the key trend resistance zone we have been highlighting, between 1.4250 and 1.4350," notes Robin Wilkins at Lloyds Bank.

The daily RSI has also unwound to topping levels, with further support for renewed weakness from 2-year rate spreads.

Lloyds say that while under this resistance they are looking for the market to come back under pressure towards the recent lows, with 1.4125/1.4100 intra-day pivot support in this regard.

Pound to Australian Dollar Exchange Rate: Nearing Target

The GBP/AUD pair has accelerated its decline breaking down below the lower boundary of its descending channel.

The next target on the radar is the 100% extension of the channel lower, at roughly 1.9000, which is also just above support from the S1 Monthly Pivot at 1.8945.

The pair has already broken below the 1.9250 lows helping to confirm an extension down to the key 1.9000 psychological level.

Downside momentum has slowed, which is a warning sign the pair could be nearing a bottom, according to the old wall street saying: “never short a dull market.”

There is a small chance the breakout from the descending channel could mark an exhaustion point for the trend, however, given no strong indications yet of a recovery, it is safe to assume bears are still in control.

For those willing to assume some risk, a break below the 1.9090 level would probably confirm a continuation down to 1.9000.