Is the Euro to Pound Rate's Climb Unstoppable?

It seems like nothing can stop the euro to pound sterling exchange rate from rising, but we all know the move can't last indefinitely so we ask some leading FX technicians what the future holds.

Sterling remains in the doldrums.

"The absence of economic news didn’t provide any help for the beleaguered UK currency. On the contrary. Polls on the June 23 EU referendum confirm that the vote will be a neck-and-neck race. This binary risk and a fragile global context were enough a reason for investors to avoid the UK currency," says Piet Lammens at KBC Markets.

EUR/GBP cleared the 0.8066 resistance and is today seen at 0.8082.

The clearing of this resistance is key to the outlook as it was expected to offer up resistance to further advances owing to the underlying structure of the market.

Traders tend to position themselves at various points where they see trends likely to stop, pause and reverse. Alternatively the move stops, pauses and then accelerates once breaking through.

In short, charts reflect the underlying psychology of the market.

The last time EUR/GBP reached 0.8066 was in July 2014 and further upside was prevented, the question now is will it happen again or should we wait longer to confirm the validity of the break?

Latest Pound/Euro Exchange Rates

	Live: 1.145▲ + 0.06% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1061 - 1.1107
**Independent Specialist	1.129 - 1.1336 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Lloyd’s Banking Group’s Robin Wilkin sees upside probably capped in a broader zone between 0.80-0.82:

“We expect the upside to now be limited in the cross. This is testament to the huge area of technical resistance we are now reaching between 0.80-0.82.”

Despite the strong rally since the July ’15 lows, and the fact that it remains intact, a continuation higher is now less likely:

“Medium-term the trend from the 0.6935 lows set in July 2015 remains intact, but we are now reaching a significant area of monthly resistance up to 0.8200 and would be the ideal area for a top and decline back into a broader medium-term range around 0.7500.”

It appears Lloyds’s base case scenario is therefore that the pair will hit heavy resistance in the 0.80-82 zone and pull-back to 0.7500.

But, should strength continue through 0.82 then some big gains lie ahead.

“If the 0.82 region is clearly breached the risks are for a stronger move towards 0.87/0.88,” says Wilkin.

Commerzbank See Ceiling at 0.8162

One reason to expect EUR/GBP to stall, is that it has now reached a target based on the measurement of the first leg between 0.7492 - 0.6937 higher, according to Commerzbank’s Karen Jones.

Financial markets often display an inherent symmetry, which means waves in sequence are often of equal length (or a Fibonacci ratio thereof). The first leg extrapolated higher gives an upside target 0.8030-65.

“EUR/GBP continues to inch higher and has reached the target .8030/65, this is the measurement higher from the base 0.7492 - 0.6937.”

Resistance at 0.8162, however, is likely to be the main obstacle to a higher ascent:

“We look for the upmove to start to struggle shortly - the 2008-2016 resistance line is located just above here at .8162 so upside scope is now considered to be limited.”

The Trend is Still a Friend for Broker Swissquote

Unlike Commerzbank and Lloyds who see tough resistance limiting gains, Swissquote's Yann Quellen are more bullish and expect a continuation of the current medium-term uptrend higher:

“EUR/GBP has broken the uptrend channel and is now lying around 0.8000… The technical structure suggests that the pair should show continued increase.”

Apart from strong resistance at 0.8066, analysts at the online broker, forecast a extension higher eventually:

“In the long-term, the technical structure suggests a growing upside momentum. The pair is trading well above its 200 DMA. Strong resistance can be found at 0.8066 (10/09/2014 high).”