The Euro to Pound Sterling Rate Nears Final Defence Ahead of Cracking 0.8116 Peak

The euro exchange rate complex may be under pressure, but the EUR/GBP remains one bright spot for the shared currency with markets confirming the pair is turning bullish.

The EUR to GBP conversion is inching higher and is approaching the key level of 0.7998 - this would represent the recovery of 78.6% of the ground it has lost since early April.

This recovery follows on from a more prolonged period of losses in which EUR/GBP fell from 0.81 in early April to the 0.76 level just mentioned.

Therefore, the jury has been out as to whether this recovery is a mere short-term correction within a medium-term downtrend, or the start of a protracted period of appreciation for the euro.

The answer, is looking increasingly like the latter.

Whether a currency pair is trending lower, or merely correcting within a trend, is of importance to those with an interest in a certain currency pair.

For instance, if we were observing a correction higher within a downtrend, we would assume that ultimately lower rates are around the corner because the trend must resume.

However, if a new trend is born, then in the case of EUR to GBP payments, better exchange rates would lie ahead.

Latest Pound/Euro Exchange Rates

	Live: 1.1449▲ + 0.05% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.106 - 1.1106
**Independent Specialist	1.1289 - 1.1335 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Trend Turns EUR Bullish

Analysts require certain conditions to take place before they can ascertain whether a currency is trending or correcting.

Richard Perry at Hantec Markets says for him “the technical outlook will still not turn decisively against sterling until a close above the right hand shoulder high of the old top pattern at £0.7945.”

At the time of writing this condition has been met.

Analyst Robin Wilkin at Lloyds Bank is in agreement with the notion the trend has turned.

“We are pushing back through the May highs at 0.7947, which from an Elliott Wave perspective suggests the declines from 0.8117 have merely been a correction process,” says Wilkin.

Note here that Wilkin says that the recent move lower in EUR/GBP was a correction. This is because he is taking a longer-term view of EUR/GBP which has been advancing since November 2015.

Therefore the long-term trend higher in the euro is back on, but where will the pair climb to?

“Longer-term we have cited 0.8200 as a major resistance region. The move back through 0.7947 is worrying and risks a re-test of this key resistance region, with a break there exposing 0.8370/80 and 0.8700/20 above. A decline back through 0.7525/0.7450 is needed to confirm a decline back towards 0.7200/0.7000 range lows from last year,” says Wilkin.

For Piet Lammens at KBC Markets, the break above 0.7750 was a first indication of further deteriorating sterling sentiment.

KBC now maintain a sterling negative bias. "A test of the 0.80 barrier and even a break might be on the cards in case of additional news pointing to further support of Brexit," says Lammens.

Karen Jones at Commerzbank notes that only if EUR/GBP falls below 0.7736, the 26th April low, will upside pressure be alleviated.

"Meanwhile it is bid and nearby resistance lies at .7998/ the 78.6% retracement. This is the last defense for the 0.8116 April peak," says Jones.

Nearby support lies at 0.7736 (26th April low) and .7654 (March low) and these guard the key supports, which are the 50% retracement of the move from November 2015 at 0.7550 and the 200 day ma at 0.7558.

British Pound to Remain Under Notable Pressure Over Coming 10 Days

Sterling is starting to really feel the heat as markets look to exit the GBP market ahead of the June 23rd vote.

However, there is a must-read piece on Pound Sterling Live today that reports a view that the GBP/EUR will bounce sharply to 1.40 in the days following  Brexit.

Why? Because the euro exchange rate complex has more to lose from Brexit than the pound does argues NAB’s Nick Parsons in an interview with spread betting firm IG.

Looking ahead to the next few days, uncertainty is the buzzword.

“Sterling is sliding away as we move ever closer to the EU referendum on the 23rd. Who knows which way the vote will go but sterling is being undermined by the uncertainty and this isn’t likely to change in the next ten days,” says Charles Purdy at Smart Currency Business.

We also have a busy week for data releases and central bank meetings, including our own Bank of England’s monthly meeting.

These are likely to add to the uncertainty and fuel the rapid movement in exchange rates.

“The only way to overcome the uncertainty is to buy your currency now. If you don’t need the currency immediately you can use a forward contract which ensures you know exactly what you will get for an agreed amount at an agreed date,” says Purdy.

The prospect of a Leave vote has global markets on edge and we are hearing most analysts assign blame for the current soft patch on global stock markets on the EU vote.

One analyst says the vote would present the first formal challenge to the current global economic order and could spark a much wider and more dangerous fracture of the European union.

"With Leave vote seemingly picking up momentum by the day, investors are starting to fear that what was once simply a quixotic exercise in self determination could turn into an avalanche of uncertainty that would pummel global capital markets," says Boris Schlossberg at BK Asset Management.

Euro Exchange Rates Starting to Come Under Brexit Pressure

The increasing threat of Brexit is drawing parallels to the Danish ‘No’ vote to the Maastricht Treaty in June 1992 points out Chris Turner at ING.

This delivered a serious shock to the FX and bond market convergence of EMU aspirants (including the UK) and generated a surge in the DEM against the rest of the Europe and the Dollar, as short DEM positions were unwound.

It took over a year for markets to settle from that shock and destroyed fixed arrangements for both GBP and SEK. 

"While Brexit is not our base case, the much closer vote than expected is starting to see that EMU convergence questioned in the bond market, where peripheral Eurozone and CE4 bond markets are starting to under-perform. With over a week to go, look for EUR/JPY and EUR/CHF to stay under pressure," says Turner.

And assuming the Fed does not introduce a new dovish line of argumentation today, EUR/USD should stay pressured too. 

"We have a slight bias to the 1.1120 area today in EUR/USD," says Turner.

But, longer-term, there are clearly notable risks growing for the euro.