AFEX: GBP/EUR Exchange Rate Could Still Reach 1.20
The GBP/EUR conversion is seen churning in the 1.1728 area at the time of writing, having started the week at 1.1862.
The Euro is putting in a strong performance ahead of the new month as political risks in Europe subside alongside the prospects of Marine Le Pen of capturing the French presidency.
Sterling meanwhile finds few fundamental reasons to move higher with concerns knocking the currency at the start of the new week relating to the potential for a new Scottish independence referendum being requested by the Scottish Government as early as March.
Despite the softness, a leading foreign exchange analyst confirms to Pound Sterling Live that the exchange rate could still eke out further gains and even ultimately test the highs of December 2016 which lie just above 1.20.
The call by Lucy Lillicrap - a noted technical analyst with foreign exchange brokers AFEX - has consulted the charts to get a better view of the general trend in the GBP/EUR rate.
“Values here have pulled back into their previous range for now but not sufficiently to confirm an interim high in place as yet,” says Lillicrap.
A combination of both GBP strength and EUR weakness has pushed GBP/EUR higher in recent weeks, with the pair briefly spiking above 1.19 in mid-February.
“GBP prices can otherwise continue to ‘stair-case’ slowly upwards and any breach of 1.2000 would if seen improve intermediate readings as well, targeting 1.2250 if not 1.2400 thereafter,” says Lillicrap.
The observation echoes that of others in the analyst community which suggest the slow grind higher in GBP/EUR remains in place.
However, those hoping for a stronger Pound should be aware of the support levels that if broken signal a move into negative territory.
For Lillicrap such an outcome would be triggered on any loss of secondary support at 1.1640/50 which would probably be sufficient to damage the recovery sequence from 1.1300 and provoke another examination of at least 1.1500.
Analyst Bill McNamara at brokers Charles Stanley would however like to see a more concerted move higher in GBP/EUR before suggesting a "break higher" is underway.
"Last week’s 0.8% advance was notable for the fact that it lifted sterling through the downtrend that began in November 2015 for the first time. This occurred in spite of a 0.6% decline on Friday and this choppy price action suggests that the path higher will not be without obstacles; in fact, given the lack of clarity over the last couple of months we’re probably going to need to see a close above 1.20 before it is possible to assert with confidence that a break higher is finally underway," says McNamara in a note to clients.
Euro Firms as Macron Adds to Advantage
Euro exchange rates firmed at the start of the week as political uncertainty related to the French presidential election abates.
French independent candidate Emmanuel Macron would easily beat far-right leader Marine Le Pen in the second round of the country's presidential election in May, according to two new surveys.
A poll by Odoxa for Dentsu Consulting and cable channel France 2 shows Le Pen losing to Macron in the May 7 run-off by an increased margin of 20 points.
The polls come a week after we reported the Euro to be under pressure as Le Pen was seen closing the gap on her rivals for the second round.
The Euro, "had a decent rally in reaction to better poll results on Monday, favouring Independent Centrist Emmanuel Macron. That said, we are still weeks away from the first round of the Presidential Election on 23 Apr and political noise could continue to weigh on the EUR. Some downside pressure on the EUR expected as we head into March," says Saktiandi Supaat, Head of FX Research at Maybank in Singapore.
Outside of politics, economic fragmentation is a concern for the single currency. Namely, this week we expect German CPI to
top 2% for the first time since 2012.
Against this, the ECB QE program persists, limiting the scope for nominal rates to edge higher.
This is keeping real rates in check and should remain a headwind for the EUR as political pressures build.
Over the coming quarters developments in the political landscape are likely to remain the most important driver of GBP/EUR.
The triggering of Article 50 and the negotiating stance of the UK government could all add to the volatility around GBP while the Dutch, French and German elections present clear risks to the EUR.
