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Pound Labours @ 1.19 Against the Euro - The Next Big Move Could be Lower

euro exchange rate 4

  • Pound to Euro exchange rate today (16-12-16): 1 GBP = 1.1911 EUR
  • Euro to Pound Sterling exchange rate today: 1 EUR = 0.8396 GBP

Our studies suggest the GBP/EUR pair is showing signs of topping and may be ripe for a big move to the downside.

The call comes as the Pound enters a period of tight consolidation against the Euro that is centered around the 1.19 level.

The exchange rate looks increasingly unable to break above 1.20 thanks to the stickiness seen around 1.19 and a capitulation lower could be nigh.

Of course if a break does occur it could be to the upside, but there are a couple of reasons why we are leaning towards a move lower.

While momentum indicators suggest the trend is marginally positive the pair is settling into a tight range as volatility fades as shown by the narrow ‘doji-like’ candles on the below chart:

GBPEURDec14b

Sometimes several of these narrow ‘doji-like’ days can forebode weakness for an asset appearing just before the start of a sharp move lower.

For confirmation of a bearish reversal, however, we would ideally wish to see a break below the trendline from the October flash crash lows.

Such a break would be confirmed by a break below 1.1650, with a target at 1.1425.

Those with large Euro payments should ensure their foreign exchange provider has set relevant limit and buy orders accordingly as this will allow the optimum response to any impending break-out.

Indeed, given the trend is actually still up based on a number of momentum indicators – and notwithstanding the list of doji days a continuation higher is still a possibility too.

The two major strata of resistance levels above price action, however, are a tough ceiling to progression higher.

These comprise of the 200-day MA and a monthly pivot – both situated close to each other at around 1.2100.

To confirm a continuation of the bull trend higher, I would ideally wish to see a break clearly above 1.2100, confirmed by a move above 1.2200 which would generate a target at 1.2300.

Until confirmation of the bearish or bullish scenarios have occurred I remain neutral with an ever so slight bearish bias.

Latest Pound/Euro Exchange Rates

United-Kingdom European-sUnion
Live:

1.1517▼ -0.26%

12 Month Best:

1.3218

*Your Bank's Retail Rate

 

1.1125 - 1.1171

**Independent Specialist

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

What is interesting is that the recent break lower in EUR/USD has not had a draw on the EUR/GBP - as has been the case in the recent past.

"We suggested that EURUSD breaking below 1.05-1.0450 key support would see the cross follow it lower. However, this hasn’t been the case due to GBPUSD normalising its correlation with the broader USD," says analyst Robin Wilkin at Lloyds Bank Commercial Banking.

This has left EURGBP in a tight range around 0.8370 and Wilkin says 0.8300-0.8250 is still important medium-term support and while over them he is looking for signs of a base developing.

To translate the above into GBP/EUR terms, Wilkin sees a tight range around 1.1947 and resistance to upside moves are located at 1.2048 and 1.2121.

"However at this stage a rally back through 0.8550-0.8600 is needed to add conviction to that view," says Wilkin.

Thus, a break below 1.1696 and 1.1628 would add conviction that the exchange rate has hit its maximum.

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