Pound to Test 1.30 Against Euro in Coming Months: Lloyds Tech Forecasts

Technical studies on the GBP to EUR conversion suggest the growing recovery could extend further.

The recovery in Pound Sterling continues into the start of September with the currency near where it traded on the 4th of July; the date when the Bank of England famously cut interest rates to a record low and boosted its quantitative easing programme.

The Bank introduced the extraordinary stimulus to ensure the UK economy avoided negative growth owing to the Brexit vote delivered on June 23rd. 

The actions extended a deep sell-off in Sterling which lost the support of relatively higher interest rates and bond yields (when compared to the Eurozone).

However, questions are now being asked as to whether this action was premature as subsequent survey data - and official data - confirm the UK remains in expansionary territory.

The Pound has recovered accordingly and we have since heard from Lloyds Bank Commercial Banking’s core research team that Sterling will likely recover against the Euro over coming months.

The view is reported here.

Now, the technical analysis team at Lloyds add weight to the core view and tell us that their studies reveal a bottom in the GBP/EUR exchange rate has formed.

Analysis of recent price action suggest the break up through important resistance at 1.18 was key in adding further evidence that 1.1468 was a significant medium-term bottom.

Latest Pound/Euro Exchange Rates

	Live: 1.146▲ + 0.15% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.107 - 1.1116
**Independent Specialist	1.13 - 1.1345 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

The 1.1468 level was the early August low at which the Brexit referendum sell-off was finally arrested.

Analyst Robin Wilkin tells clients the next resistance targets that could test the move higher are seen at 1.2048-1.2121.

These are the July highs and provide weekly trend resistance.

Initial support that could prevent notably weakness is seen at 1.1785 and 1.1744.

A decline through here would suggest a broader short term correction is developing, but one which should still develop a higher low in the 1.1655-1.1554.

Long term, in conjunction with their GBP/USD view, Lloyds believe the move below the July lows is the last within the decline phase from the 1.4285-1.4493.

Lloyds say we are seeing further signs that a bottom is in place for the exchange rate and they forecast a move back to 1.25 and then the 1.33 region in the coming months.

CFTC Data Confirms Traders Were Burnt

Data from the US Commodities Futures Trading Commission (CFTC) show that traders continue to prefer to bet on further Yen gains and Sterling falls. 

These have been the standout crowded positions according to CFTC data on the futures market.

"Yen bulls and Sterling bears got a proper end-of summer hiding this week. In the Pound's case, good data played a major part with huge upside surprises to the Manufacturing and Construction PMI figures for August," says Kit Juckes at Societe Generale.

September Services PMI data are out Monday and Juckes says, "it's clear that the initial slide in the UK survey data exaggerated the effect of the referendum vote and even if the bounce tells us little about the future outlook, positioning has suffered."