GBP/EUR Exchange Rate's Uptrend is Still Alive, Keep Watching Key Level Though

We comb through the most up-to-date research on the British pound / euro exchange rate to figure out whether higher rates lie ahead.

Pound sterling came under notable pressure on global FX markets at the start of the new month with the most recent polling evidence suggesting that the UK is headed for an exit of the European Union.

The polling data will come as a shock to a complacent market place that was happy to keep buying GBP on the assumption that a Remain vote was sealed.

The pound fell from highs above 1.32 down to lows at 1.2870 in the space of 48 hours, remarkably taking out the big support levels of 1.30 and 1.29 without the batting of an eyelid.

The important point to note is that, according to the bookies whose odds tend to be more reliable than polling evidence, there remains a strong probability that the UK will vote to Remain in the Union.

The pound has since recovered lost ground with some commentators observing the currency was oversold and in need of respite.

This call looks to have been correct.

The market also remains structured in such a manner that favours sterling - we note the pound bounced off the trendline support (refer to the graph) and this line has proven pretty instructive of late.

If this support line holds and GBP/EUR moves higher the recent declines could be said to be nothing more than a healthy correction lower.

Latest Pound/Euro Exchange Rates

	Live: 1.1457▲ + 0.12% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1067 - 1.1113
**Independent Specialist	1.1297 - 1.1342 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The GBP/EUR Outlook From Leading Institutional Researchers

Lloyds:

According to Robin Wilkin at Lloyds Bank, short-term mechanical studies remain negative and as such while under resistance in the 1.3063/1.3080 region we can see a push towards more important Fibonacci and channel support in the 1.2903-1.2812 region.

A rise back through 1.3063/1.3080 would likely see a re-test of the channel resistance once again.

Longer-term Wilkin has cited 1.2346-1.2195 as a major support region and price action continues to suggest 1.2320 was a bottom that allowed a recovery for a move back towards 1.3699.

Further confirmation would come from a break through the 1.3333/1.3423 range highs of last year. A rally back through 1.2903/1/2821 would negate this outlook and suggest the advances were just corrective for a re-test of 1.2195, with a break there risking follow-through to the next levels at 1.1947 and possibly 1.1494.         

Swissquote:

GBP/EUR’s medium-term momentum is still oriented upwards despite the ongoing retracement lower argues Yann Quelenn at Swissquote Bank.

Hourly support can be found at 1.2897 (23/05/2016 low) while hourly resistance can be found at 1.3219 (25/05/2016 high) and Quelenn says we should expect the pair to show further consolidation.

If we take a further step back it is argued that the pair is still seen to be retracing from recent highs made in 2015.

In the longer-term timeframe Quelenn argues that the technical structure suggests a growing downside momentum. The pair is trading well below its 200 DMA.

Strong support is however noted by the Swissquote analyst at 1.1344 (25/02/2013 low) - we would only really expect this level to be considered should the UK vote to leave the European Union in June as a notable fundamental trigger would be required for the move.

Commerzbank:

GBP/EUR has seen a major reversal just ahead of key resistance, which is the 50% retracement of the move from November 2015 at 1.3245 and the 200 day ma at 1.3280.

Analyst Karen Jones says that beyond this dip, her team remain positive on the exchange rate’s prospects.

“The market has recently completed a head and shoulders top, which offers a downside measured target to .7360,” says Jones, analysing the pair from the EUR/GBP angle.

In GBP/EUR terms the target mentioned is 1.3587.

The market will find initial support at the 1.2998 23rd May low says Jones, the short term uptrend at 1.2809 maintains near term upside pressure.

Societe Generale:

GBP/EUR faced solid support at the 1.2346, 61.8% retracement since 2013 and has staged a recovery through May back towards previous lows of 1.3228/1.333.

With daily RSI close to resistance, a break above will be needed for a continuation of the up move.

Short term, a decline can be expected towards the neckline of the Head & Shoulders pattern near 1.2853.

What Will Tomorrow Bring?

The sense we are getting here is that these technical analysts are still open to a rise in the sterling-euro rate based on the upside momentum developed over the course of May.

However, the pace of the declines seen at the turn of the month has been so fast that many support areas have been taken out.

We reckon that subsequent updates by the above mentioned analysts will reflect a decidedly more negative tone.