One more big fall in Pound Sterling remains possible warns technical analyst Lucy Lillicrap at AFEX Markets Plc.
- Pound to Euro exchange rate today (2-11-16): 1 GBP = 1.1062 EUR, 0.10% lower on the day
- Euro to Pound Sterling exchange rate today: 1 EUR = 0.9040
- Pound to Dollar exchange rate today: 1 GBP = 1.2270 USD, 0.21% higher on the day
Sterling has fallen back against the Euro over the past 24 hours but what is notable is the UK currency has moved higher against the Dollar.
Typically we would expect the UK currency to move in tandem against the two in times of Sterling weakness which suggests to us immediately that declines at the start of November are not necessarily related to Brexit headlines.
In fact, the EUR/USD has surged by the same amount as EUR/GBP which confirms we could reasonably attribute the move to Euro strength and Dollar weakness.
It would appear that Donald Trump has closed the gap on Hillary Clinton in the race for the Whitehouse which brings in doubt a December interest rate rise, which in turn has seen the Dollar lose support.
The Euro appears to be the winner in this dynamic. "The EUR’s relative safe-have appeal and tendency to rise in a risk-off market will continue to support the currency", says Viraj Patel at ING in London.
It is worth noting that against the Dollar the Pound has risen to its best level in nearly two weeks confirming that the Dollar is bearing the brunt of market concern over Trump's rise.
And, the dynamic could last, "the recent resilience of equity markets to steepening yield curves gave way yesterday and the spike in the VIX suggests that we’re in for a spell of risk-off (at least until election day," says Patel.
Pound Still Pointed Lower
Could this then be the end of the GBP/EUR's multi-week period of stability?
Not necessarily says analyst Lucy Lillicrap at AFEX Markets plc who tells clients that the sideways move could yet extend.
However, the analyst believes stability will eventually give way to further downside for the Pound.
With regards to both GBP/USD and GBP/EUR, “at least one more sell-off is readable here before the current negative trend completes,” says Lillicrap in a weekly briefing to clients.
However, “no direct re-test of prior notable (Dec 2008) 1.0200 area lows is currently favoured.”
Instead Lillicrap’s projections suggest an interim range now exists either side of 1.1000 with resistance at 1.1250 but support also extending to 1.0750.
“Further weakness may well unfold in coming days with 1.1075 support still vulnerable initially (targeting 1.0925 next once broken) but expect stability to return thereafter as this holding pattern takes shape,” says Lillicrap.
The analysts reading of the technicals on GBP/EUR echoes the fundamentalist approach taken by Citi.
We reported last week that analysts at the world’s largest foreign exchange broker believe Sterling will continue to consolidate over the near-term ahead of another lurch lower.
Neither the trigger of the fall, nor the exact timing, are known owing to the headline-driven nature of Sterling’s movements in the second-half of 2016.
While calling the timing of the next major move is unknown the message is clear - those with impending currency payments should be positioned in such a way that they are not caught out by a big break to the downside.
Also seeing the potential for a near-term extension higher are Lloyds Bank Commercial Banking.
The GBP/EUR is enjoying strength once more after developing a higher low in the 1.1050-78 region.
Analyst Robin Wilkin at Lloyds Bank tells us his bias remains to the upside, with a break of pivotal resistance in the 1.1173 region opening a re-test of the 1.1261 key resistance zone.
A subsequent break there should open a move to test more important daily trend support around 1.1338.