The British pound has been unable to force the euro below a key support level since October 2015, why should this time be different?
The euro to pound sterling exchange rate has been in decline since the 7th of April as the UK currency continues to benefit from an improvement in risk sentiment amongst investors.
One side-effect of the mid-year EU referendum has been to turn sterling into a 'riskier' asset - one that is bought when the going is good and is sold when markets turn fearful.
The uplift in global stock markets of late has aided a recovery against the euro which now finds itself at a crucial juncture.
The EUR/GBP is resting above its 50 day moving average locarted at 0.7800. The important point to note is that sterling has failed to push the euro below this area of support since October 2015.
Since the pair crossed back above the line in early December the pair has failed to fall below it again:
What this tells us is that should the positive sentiment on global markets continue to extend then there is a risk that the pound could push the euro beyond a key threshold.
There will be significant amounts of buy orders set around this level as traders bet on a recovery; however should the bears break the level we could see a massive amount of sell orders triggered as these positions are forced to close.
This could accelerate the decline to lower levels.
What the Big-Name Tech Analysts are Saying
We ask a number of analysts where the euro is likely to trade against the pound this week.
Knowing where the pair’s limits lie will help inform those with outstanding payments as to where the best possible order areas to transact can be found.
Robin Wilkin at Lloyds Commercial:
“The cross has pulled back and is holding important support in the 0.7925-0.7880 region.
“A break of this region would support further EUR underperformance, for a move back towards 0.7750-0.7650 support below. Intra-day resistance lies at 0.8005-0.8035.
“If we hold over support and rally back through there it would suggest the core trend is still in place.
“Medium term, the trend from the 0.6935 lows set in July 2015 remains intact.
“A decline through daily trend support at 0.7925-0.7880 would add increasing weight to confirming a significant top is developing.
“Only a clear breach of the 0.82 region would suggest that isn’t the case with little meaningful resistance above till 0.84 and then 0.87.”
Stéphanie Aymes at Societe Generale:
EUR/GBP is facing stiff resistance at multiyear descending channel upper limit near 0.81/0.8150, also the 61.8% retracement from 2013 highs.
“With monthly indicator near a resistance, only a break beyond 0.81/0.8150 will lead to a larger up move. Short term retracement is likely towards daily channel at 0.7880/30.”
Richard Perry at Hantec Markets:
“The breakdown on the euro below $1.1325 continues to imply a near term correction back towards $1.1200.
“The outlook remains broadly positive within the trading range over the medium term but the chart still looks corrective.
“The Stochastics continue to fall back and the MACD lines only recently crossed lower. The minor technical rebound at the backend of last week was rather tepid with a couple of rather drab, small bodied candles, whilst in the Asian session today there has been little real appetite to buy the euro.
“The hourly chart shows that the old support around $1.1325 has now turned into overhead supply, whilst the hourly momentum indicators are also beginning to roll over already.
“Initial support comes in around $1.1230/40, with more important support not until around $1.1140.”