Pound sterling has broken above the key 1.30 barrier courtesy of latest polling that further solidifies the Remain vote ahead of the June 23rd referendum. How much higher can GBP/EUR go though?
The pound has dominated foreign exchange markets over recent days with the UK currency taking the crown of top performer amongst the world’s ten biggest currencies in the week ending 19th May.
The move higher accelerated on Tuesday the 24th after an ORB International poll confirmed evidence of a shift amongst Conservative supporters to the Remain vote which appears to be building a more comfortable lead.
Analysis confirms that hedge funds and asset managers are driving demand for sterling as they look to position themselves for the Remain vote winning in the mid-year referendum.
Concerning the technical setup in the market, any weakness is forecast to be temporary in nature.
“As the daily candlestick chart demonstrates, this lifted GBP/EUR to its highest value since early February and, in the process, achieved a 38.2% retracement of the decline that began last November,” says technical analyst Bill McNamara at London-based brokers Charles Stanley.
However, if there is a caveat to the positive case for the UK currency it is that it closed well below the week’s highs, at 1.307, and McNamara suggests that a degree of profit-taking could set in following its recent strong run.
“That said, the broader technical picture remains supportive and further upside looks possible if the polls remain the way they are,” says McNamara.
Those with pound / euro payments are likely to see their bank quote in the 1.2737 - 1.2645 region while foreign exchange payment specialists are quoting in the 1.2986 - 1.2894 area.
1.33 Must be Overcome for Sustainable Uptrend to Establish
However, analyst Lucy Lillicrap at Associated Foreign Exchange will only anticipate the establishment of a more sustainable uptrend once a bigger technical barrier is breached.
"Recent sharp gains notwithstanding Sterling prices here still have a number of important looking hurdles to overcome before a major bottom is established," says Lillicrap.
The market evidently held above long term (trend) support at 1.2250 on its previous sell-off but additional evidence remains necessary before current gains can be confirmed as trend-like.
"Resistance should firm up around 1.3100 and only beyond 1.3300 secondary supply as well would be overtly bullish. Meanwhile effective support looks limited until 1.2750 and then 1.2550 again," says Lillicrap.
Euro to Pound Studies Confirm pro-GBP Bias
Looking at the pair from the other way around, and taking into account an additional opinion, we hear that the pro-GBP bias is confirmed.
Financial analyst Patrick Krizan at Raiffeisen Research in Vienna says the formation of a ‘Head & Shoulders Top’ on EUR/GBP advocates for further declines in the euro.
Raiffeisen recommend traders be short on EUR/GBP in anticipation of a decline to 0.75, the pair is at 0.7750 at the time of writing. (For those looking at the pair from GBP/EUR, this is a target of 1.33 from the current 1.29).
“The Head & Shoulders topping pattern signals another decline to follow; hence, a break of the support at 0.7665 would pave the way for 0.7500. Stop: 0.7810,” say Krizan.