Pound vs Euro: Sterling Still on the Road Higher
Pound Sterling trades firm against most major currencies following the swift passage of the Article 50 bill through the House of Commons.
Theresa May and her Government managed to ensure the concise wording of the bill remains intact and there were not additions or amendments.
The victory for May is taken as a positive simply in that some certainty has been put on the table regarding the Brexit story, even if the hard slog at the negotiation tables has not yet happened.
The Pound to Euro exchange rate has moved higher to record a mid-market rate of 1.1741 ensuring the pair is roughly where it was at the start of February.
The Euro meanwhile labours under the weight of growing apprehension amongst investors regarding the continent’s political stability.
“France’s upcoming election has exposed a significant vulnerability for the euro with polls showing anti-euro candidate, Marine Le Pen of the far-right, with a solid chance of winning the first round of France’s two-round election that starts on April 23,” says Joe Manimbo, Senior Market Analyst at Western Union.
Le Pen aspires to pull France, the bloc’s second biggest economy, out of the 19-nation euro zone and put its EU membership up to a referendum, a so-called ‘Frexit’ vote.
“The interim uncertainty risks subjecting the Euro to months of rocky and unpredictable trade,” says Manimbo.
While the Pound's outlook is shady owing to Brexit it helps to have a counterpart that is also facing its own troubles to ensure at the very least any weakness is ultimately contained.
More Gains Possible
Yann Quelenn, a Market Strategist with Swissquote Research believes Sterling can still climb higher against the shared currency noting the exchange rate, “is reversing very quickly”.
Quelann's analysis of the pair in the short-term timeframe suggests hourly support for the exchange rate is given at 1.1567 (31/01/2017 low) while resistance to strength is likely to emerge at 1.1834.
“The road is nonetheless wide open,” towards a target at 1.2042 if support at 1.1567 holds.
This view concurs with those of our technical analyst Joaquin Monfort who has observed GBP/EUR has now completed an a-b-c correction lower on the daily chart.
The completion of the correction lower has allowed the pair to revert back to its previous trend of strengthening and our intitial target stands at 1.1800.
The 50-day moving average is providing an obstacle to more upside at 1.1720, however we think that on balance the risks support a continuation higher to our original target.
The monthly chart is supporting a bullish outlook during the month of February after completing a ‘one step forward, two step back’ pattern (circled) which has a 66% probability success rate of indicating that the month is going to close higher.
This pattern is basically composed of a strong green up bar followed by two weaker down bars and indicates an increased probability that the next bar will be higher.
It works on daily, weekly and monthly charts, but is more reliable on higher timeframes.
The monthly MACD is also arguably turning higher indicating potentially more upside on the horizon.
The monthly chart suggests that the tide is up and since it is best to swim with the tide we recommend waiting for our move to extend up to a target at 1.1800.
